Did you know your credit score could be costing you thousands of dollars on a single car loan? A low credit score can increases the cost of a 60-month, $20,000 auto loan by more than $5,000.
But that’s not all, credit scores can be used by both creditors and non-creditors to determine what they’ll sell you, and at what price. Unfortunately, many underestimate the true cost of a low credit score, according to a new survey by Consumer Federation of America (CFA) and VantageScore.
Understanding how credit scores work can give you a better picture of your financial well-being. Here are seven things you should know about your credit score, and the impact that it has on you every day:
1. Credit scores influence what you can purchase and at what cost
Your credit score impacts the interest rate credit card companies will offer you, which is the amount you will pay to borrow money if you have a revolving balance.
But credit scores are used by non-creditors as well. Utility companies, home insurers, cell phone companies, landlords, and others may use credit scores to determine things like if they will offer you a contract or the amount of your initial deposit. This can affect where you live, how much you need to save for a deposit on an apartment, and even what cell phone plan you are eligible for.
2. You have many different credit scores
Some credit scores are generic, some are lender-based.
You may be most familiar with credit scores from the three credit bureaus (Equifax, Experian, and TransUnion), but they are available from many sources. While most scores are based on information in a credit report at one of the bureaus, competing websites estimate your score by asking a series of questions about your credit use.
3. FICO and VantageScore are the two main scoring systems
Credit scores from, or based on, the three credit bureaus use either FICO or VantageScore. Like FICO, the current VantageScore 3.0 model ranges from 300 to 850, an update from their old range of 501 to 990.
4. Your behavior influences your score
Key factors used to calculate credit scores include missed payments, personal bankruptcy, and high credit card balances. And it’s much easier to lower your score than raise it. A couple of late credit card payments, for example, may lower your score enough that it can take a year to get your score back up to what it was before you missed the payments.
5. Inaccurate information can influence your credit report
Check your credit report for free at least once a year. You can access these reports for free at annualcreditreport.com, or by calling 877-322-8228, and should always do so before seeking a mortgage or car loan.
6. You should comparison shop for credit
You may be able to find better loan terms from shopping around, especially if you have a lower score. Different lenders use different criteria to determine loan terms, even when using the same credit score.
7. Be wary of credit repair companies
Credit repair companies that claim to help you raise your credit score often charge high prices while performing services, such as correcting credit report inaccuracies, that you can do yourself. Certified credit counselors, on the other hand, are qualified to help you improve you credit worthiness.
Looking for more information? Be sure to test your credit score knowledge at CFA and VantageScore’s creditscorequiz.org and learn more about credit score basics and details.
7 things you should know about credit scores: http://bit.ly/29DehAE @ConsumerFed @VantageScore v/ @AmericaSaves
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