Credit Score

Credit-score ignorance can hurt you

Credit report scores affect everything from the interest people pay on mortgages to whether they qualify for insurance. Credit report scores are increasingly used by utilities, insurers and employers, as well as creditors, it is essential for consumers to learn their score and what it means

The cost of not knowing your score and its significance could be not only denial of credit but also difficulty obtaining needed services and even a job. Yet most people don't understand credit scores, or what's considered a good or bad score, according to a survey of more than 1,000 adults released by the Consumer Federation and Providian Financial.

This three-digit number is an analysis of your past credit history and is compiled from information on your credit report. It is used to predict the chances that you'll get seriously behind on repaying your plastic, loans or other credit. A consumer with a score in the low 600s might end up paying a high subprime interest rate or be denied credit altogether. The lowest interest rates are reserved for those with scores above the low 700s.

The higher a consumer's score, the more likely he or she will qualify for a good interest rate on credit cards and mortgages. And these scores are increasingly being used for other purposes, such as evaluating potential tenants, setting deposits for utilities and determining the rate on auto-insurance policies.

Having a low credit report score can cost consumers a lot of money. Take the case of two consumers applying for a 30-year, $150,000 mortgage. A borrower with a FICO score of more than 720 could expect to be charged a 5.72 percent interest rate, with a monthly payment of $872. But a borrower with a score below 560 will likely face a 9.29 percent rate with monthly payments of $1,238. That's a difference of nearly $4,400 a year in mortgage payments.

Beginning in December, mortgage lenders must disclose scores to loan applicants, under a federal law passed last year.

Consumers are advised to check their credit report each year for errors that could lead to a lower score. You can purchase their credit scores and credit reports from the major credit agencies.

To learn how to get your credit report and score, click here.