While some surveys show that 9 out of 10
consumers are unaware what their credit score is, I’d like to quickly share with
you how your credit score could be costing you a fortune…in more ways than you
We all know a low credit score will make
everything in the world of finance more expensive because of higher interest
rates from lenders due to being considered a greater credit risk (i.e. higher
interest rates on car, homes and credit cards). While this may be considered
common knowledge by some, it’s truly devastating effects are understood by few.
For example. If you purchase a $200,000 home on a
30 year fixed mortgage at 8% interest instead of 6% (because of your credit
score); that 2% is going to end up costing you a total of $96,934.11 over the
term of the loan. Now, think about how many “extra” years you’ll have to work to
pay off $96,934.11 because of an extra 2% in interest?
The part few people talk about is all the other
areas in life where a low score will increase your cost of living on an annual
basis. For example, in addition to paying more for a car, home and credit cards,
a low credit score will most likely have you paying more for the following as
As many as 92% of the 100 largest personal automobile insurers use
credit information to underwrite new business, according to a 2001 study
by Conning & Co., an insurance-research and asset-management firm.
It’s thought many insurance companies see a correlation between low
credit scores and increased property insurance claims. Therefore, a low
score will result in higher rates.
||LIFE and HEALTH
Customers who are unable to pay their monthly insurance premium thereby
pass along that increased cost to the insurance company whose stuck with
the bill… resulting in a loss for the company. Since customers who pay
without lapse are more profitable it is felt by many that a low credit
score now even affects a monthly life and/or health insurance premium
One of the more shocking areas where a low credit
score will you cost you is in the area of employment. It’s estimated as many as
42% of employers now do credit checks on applicants before hiring them
(according to a 1998 survey by the Society for Human Resource Management).
While many employers claim they only do it to
“verify” information on your application (such as where you live and where you
have worked etc.), we can both assume they are taking the liberty to “have a
peek” at how you handle your financial affairs as well. According to the Public
Research Interest Group (PIRG), as many as 79% all credit reports contain
errors—25% of which are serious enough to cause the denial of credit (according
to a 2004 report).
And that's all the more troubling in light of the
increasing impact a bad credit report can have, says Ed Mierzwinski, director of
PIRG's consumer program. "It's outrageous that the credit bureaus are claiming
their scores are accurate enough to take people's lives and screw with them like