Credit Score

Consumers Can Save Money With Good Credit Score

These days it is easier to get credit, but many people pay more for it because of their credit scores. Credit scores are an important part of everybody's credit profile. Tough luck if the consumer brought the bad score on himself through careless money management. Big bucks ride on the difference between a good score and a mediocre or bad score.

Lenders use the scores to determine whether to offer credit to individual consumers and how much they will charge in interest: the lower the score, the bigger the risk, and the higher the interest rate. They like credit scores because it's quicker to look at a number than to look at credit reports.

A credit-score difference of 50 points can have significant consequences. Take, for example, two people each borrowing $150,000 to buy a house. At current rates, the one with a good score will pay $876 a month for a 30-year mortgage (interest rate: 5 3/4 %), according to Fair Isaac Corp., a Minneapolis company that developed the credit risk score process. The other, with a lower score, could be burdened with monthly payments of $1,236 (interest rate: 9 1/4 %) on a loan for the same amount.

Consumers who have made poor financial decisions can improve their scores by reforming their ways and letting time pass.