Sunday, March 11

Your Important Credit Rating

Your credit rating has everything to do with almost everything in your life! Wait a minute, everything? Well, just about. Your credit rating is basically a predictor of how you will pay your bills. It can effect everything from whether or not you can get a reasonable loan to whether or not you can be hired for the job you want. Read on...

Your Job
With our world of information and high technology, potential employers can, and will, get to know an awful lot about you before hiring you. It's understandable that the potential employer will look at a criminal background check, but a credit report too?

Your credit rating could effect the type of job you can get. For example, somebody applying for a job as a bank teller with a poor credit rating will likely be passed over for someone with a good credit rating. Why? A good credit rating comes from a good credit history. A good credit history shows that you've handled financial responsibilities appropriately, that you can be trusted. It shows that you've borrowed money and were responsible and had the discipline to repay it as agreed. A poor credit history shows that you might be a risk of not completing tasks as required, have poor follow through, are undisciplined and not very responsible. This isn't saying that you are or aren't these things, its just what a credit report might say about the way you handle things...

Your Money
Your credit rating will effect how much you pay for money. Pay for money you ask? When you borrow money from a lender, you will be charged interest (sometimes, instead of interest, you're charged a whopping upfront fee, like with payday lending)on the amount that you've borrowed. With a good credit rating, you'll get a preferred (low) interest rate. On the other hand, if you have a poor credit rating, you'll get a high interest rate. So, what's the difference? You aren't concerned about the rate, just the payment? You don't care what the rate is as long as you can afford the payment? Consider this...

A $10,000 car loan over 60 months. With a good credit rating, the interest rate is 5% and the payment is $189.00 per month. Take the payment of $189 and multiply it by term, and the total cost for the car is $11,340. Now, with a poor credit rating, the rate is 18%. Same amount borrowed, same term, same CAR! How much is the payment? $254 per month! Total cost for the exact same car is $15,240! This is $4,000 more, almost $1000 per year!

Insurance Companies
The price that you pay for your car insurance and homeowners insurance might be effected by your credit rating. Why? For some of the same reasons that you might not be able to get the job that you want; credit ratings have a tendency to mirror levels of responsibility. A high credit rating usually indicates that the person is of responsible character, a good or low risk. This is what an insurer is looking for; a low risk!

If you have a low credit rating, then you're looked upon as a high risk, and the price that you pay for insurance is effected by your risk level. Moreover, you may not be able to get insurance as a high credit risk!

Your Housing
Do you want to buy a house? Are you renting now? Do you already own a home?

No matter which applies to you, your credit rating is impacting your situation.

If you want to buy a house, a poor credit rating is going to keep you from doing so, and in more ways than one. Not only is a poor credit rating indicate a high risk to a lender who is looking at your loan application, you're cash reserves (savings) are impacted by the cost of the interest rates that you're paying on your other obligations. Remember the car loan example? That $4000 extra that you're paying in finance charges could have been socked away for a down payment on the home of your dreams!

Do you already own a home? With a good credit rating, you're probably enjoying the benefits of a preferred interest rate, which qualified you for a more expensive home. How? Because a lower interest rate can mean a lower, more affordable monthly payment. For example, a $150,000 home loan at a preferred interest rate of 6% over 30 years translates into a payment of $899.00 per month. On the other hand, the same loan with the not so preferred rate of 9% carries a payment of $1,207 for the same term. Now, it would be easier (from a bankers perspective, and maybe yours too) to qualify for the lower, more affordable payment.

Are you renting? That may be a good idea, especially while you take steps to fix up your credit! But, did you know that some landlords will check your credit rating? And, did you know that a low credit rating may prevent you from renting from some landlords? Why? Because your credit rating, high or low, gives them an impression of your level of responsibility.

Your credit rating gives others an impression of your level of responsibility. From employers, to bankers, to landlords, to insurers. The better the impression that you can make, the more willing they will be to do business with you at preferred rates.

If you have a low credit rating, stay tuned for suggestions on ways to improve it. Or, if you would like to contact me personally for more information, send an email to .