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 can imagine).
We all know a low credit score will make everything in the world of finance more expensive because of higher interests rates from lenders due to being considered a greater credit risk (i.e. higher interest rates on cars, 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 well:
1.) AUTO INSURANCE. 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.
2.) HOMEOWNERS INSURANCE. 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 a higher rates.
3.) LIFE and HEALTH INSURANCE.
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 negatively.
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 this".
by: Jay Peters,© 2007 All Rights Reserved
