In a study by the Fair Isaac Corporation, who created the FICO scoring system, they discovered that 49% of the people polled did not understand that credit scores measure credit risk. Even if you are not included in this statistic, chances are you may not know exactly how a score affects your life or even how to read a credit report. There is a lot that goes into generating the number and it is your responsibility to manage your credit and understand your credit score and report.
Your credit score is like your fingerprint and follows you everywhere. Surprisingly, your credit score can fluctuate daily without you actually doing anything. Creditors report their data on you at varying times during the month which depending on the data will raise your score or lower your score. Since the mathematical engine that creates the scores is proprietary, it is impossible to completely know exactly how your score was determined. Additionally, the credit bureaus have their own scoring models that can differ from each one. So you could have a 720 on Experian, 744 on Transunion, and a 729 on the Equifax report.
Since your score is sensitive to every financial move you make, it is extremely important to check the pulse of your credit situation as often as possible. Regardless of what happens with the economy, people are going to need to have good credit to function in the world. Your credit score determines:
To explain things further, lets consider first the home mortgage and how credit affects this item. Gone are the days of buying a home and selling it a few years later for a profit. ARM's and other tricky loan options are a lot the root causes of the home industry collapsing. Homes should never be bought as a means of investment and should be only thought of as a home. Since people need to consider owning homes longer it is even more imperative that people get low interest rates. Even small jumps in interest can significantly add to the total you will pay over the life of a loan.
Example: Lets say you are looking for a home loan at $250,000 mortgage at a 6.750% interest rate. If you have a traditional 30 year locked rate loan you would end up paying $583,740.20 total over the life of the loan. Now lets consider you are looking at the same mortgage of $250,000 but you have a much better credit score that affords you a 5.750% interest rate. If you have the same traditional 30 year locked rate you would end up paying $525,214.80 over the life of the loan.
Think about what you could do with that money. At over $160 dollars a month, you could be adding that into your 401K, stocks, saving for college, and so much more. Sure there are typically opportunities to refinance but the attractive options are only reserved for those with very good credit scores.
It may surprise you but the credit check is becoming a key indicator during the hiring process. Your score serves as a general measure of responsibility and organization. As the job market tightens even more, hiring managers are going to need more ways to differentiate one candidate from another. Also, previous employers are shying away from being too forthcoming about a previous employee due to threats of libel and lawsuits. It is in your best interest when job hunting to present yourself as best as possible to a prospective employer and to have your credit score in order when job hunting.
Nowadays, almost anyone can qualify for some type of credit card. While credit cards are a good way of establishing credit, research has shown that the type of card in your wallet might mean more than you think. Credit cards from major credit card companies are looked upon much higher than those from local or small lending institutions. Visa or Mastercards from banks like Capital One, Bank of America, Citi, and Chase are good ones as well as Discover, and American Express. These large companies also tend to offer much more appealing perks for their members.
The best cards are reserved for those with the best credit.
With a secured credit card, you can:
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