Interest rates and credit limits are not the only terms set based on credit scores. Insuranceproviders are beginning to set premiums based on credit scores. Property managers set rentaldeposits based on credit scores. Service providers, such as residential and mobile phonecompanies, approve accounts and set deposits based on credit scores. FICO scores range from 300 to 850, with 850 being the best possible score.

The average creditscore is 675 and the median credit score is 725. Typically, any credit score over 720 is eligiblefor favorable credit terms, like a low interest rate, while credit scores below 660 usually can onlyqualify for expensive, high-interest “subprime” credit.The average American has about $10,000 in credit card debt and the average annual percentagerate (APR) is about 15% (1.25% monthly periodic rate). If this average American paid 2.5% of the debt each month ($250), it would take 26 years to pay off the debt and cost $9,757.71 ininterest. So, this average American borrows $10,000 and pays back nearly $20,000.Now, imagine two not-so-average Americans borrow the same amount on each cardholder’scredit card account. One, we will call him Jack, has a 780 FICO score and the other, Jill, has a600 FICO score. Jack was able to get a 9% APR while Jill’s credit card company gave her a 24%APR. Using the same low monthly payment model as the average American with the 15% APR,we can see how much bad credit can cost you.Jack, with a 9% APR (0.75% monthly periodic rate), will pay $250 each month for 19 years andfour months to pay off the $10,000 balance and only pay $4,191.60 in interest. Jill, with her 24%APR (2% monthly periodic rate), will have to pay $298 each month because of new regulationsrequiring credit card companies to set minimum payments no lower than all interest and fees plus1% of the account balance. This means that more of Jill’s monthly income ($48) is consumedwith minimum monthly credit card payments, but that’s not all. It will take Jill about 33 yearsand five months to pay off the entire balance and she will pay $19,949.30 in interest – nearlytwice what she borrowed!

As you can see, bad credit is costly. It cost Jill an extra $15,757.70. Bad credit can causeproperty managers to require hefty deposits (that’s assuming they approve your rentalapplication) and may even cost you an employment opportunity as some employers use creditreports to screen potential hires – and let’s not forget about insurance premiums. But these areonly the immediate costs of bad credit. Jill also lost over 14 years and $48 of monthly cash flowthat she could have used to pay other bills and buy groceries.

The cost of bad credit stretches beyond what you pay in interest, deposits and higher insurancepremiums. There are the lost opportunities because so much of your hard-earned money is beingsunk down the bad credit drain. Your credit card payments equate to $250 you are not investingeach month into a 401k, ROTH IRA or other investment account. If Jill was able to contribute$100 to her company’s 401k plan and her employer matched her $100 each month for 35 years,she could retire with about $760,000 (assuming a 10% annual rate of return).

So, low credit scores cost us far more than interest payments and even more than the lostopportunity to earn nearly one million dollars. Debt stress seeps over into our personal lives,causing marital stress, personal stress and even health problems. But don’t let these facts get youdown. Use them to motivate you in your efforts to better your situation and put the gloomy daysof poor credit behind you.

1. Postpone that refinance until your credit is squeaky clean
Even a small blemish on a credit report can cost you at closing. Money expert Denise Winston found that out firsthand: Her husband hadn’t paid a $40 pager charge. The unpaid bill was turned over to a collection agency and ended up damaging his credit score.

Because of that one small unpaid bill, the interest rate on the couple’s mortgage was 0.25% higher than if he’d had a clean score. Put another way, that’s $13,000 over the life of the loan.

The lesson? Even small items can damage your financial position. Get your credit report beforehand to see if there’s anything damaging. If so, consider postponing a refinance (http://www.houselogic.com/articles/mortgage-refinance-you-have-think-long-term/) or HELOC (http://www.houselogic.com/articles/consider-home-equity-line-of-credit/) (home equity line of credit) until small but potentially costly dings fade over time.

2. Pay your mortgage-now
Not all late payments are created equal: Almost nothing hits your credit score harder than a late mortgage payment. Payment history generally accounts for 35% of your credit score, which is bad enough, but credit score agencies consider late home payments graver than late credit card or car loan payments.

In fact, credit score agency VantageScore will knock off more than 100 points beyond what it would do for delinquent auto loans or credit cards.

But if you think you can improve your credit score with early payments, think again. Geoff Williams, co-author of Living Well with Bad Credit, says it may make a slightly positive impression on today’s risk-averse lender, but it won’t make a big difference in getting future credit.

3. Cool it on second mortgages and HELOCs
Drawing down a second mortgage or HELOC can have a negative impact on your credit score because 30% of your credit score is based on how much you owe to creditors. However, if you pay the loan on time, it will have less of an impact, says Winston.

Also, you can mitigate the credit score damage of a HELOC by staying within 30% of the limit.

4. Protect your mortgage to protect your insurance rates
Late payments on your mortgage may also affect your home owners and automobile insurance rates, potentially costing you hundreds of dollars a year, says Williams. Insurers may assume that if you’re strapped for cash and pay your bills late, you’re more likely to file a claim because you need the money.

5. Pay your utility bills and property taxes on time
If you’re late on your utility bills and your account is assigned to a collection agency, that agency may report it, causing a drop in your credit score, says Winston. The good news is that utility companies often don’t bother to report late bills to credit bureaus until your delinquency becomes serious.

Interestingly, late payment of property taxes won’t affect your credit score unless you find yourself with a lien on your property. Since liens are public records, they may appear on your credit report and might cause a drop in your credit score.

6. Refinancing? Beware of taking out equity, too
Refinancing your home generally won’t have an impact on your credit score as long as you continue to pay your loan on time, says Williams. However, if you extract equity in the deal, you could marginally affect your credit score because the amount you owe will increase.

A new speculate finds that fill with bad assets scores are statesman restive – author believable to choose quick rewards kinda than wait for a larger teach ulterior. In it, two economists attempts to translate the rootage of the protection mortgage choice crisis.

“Most oft, the reasons economists put gardant are, maybe there was not enough display for mortgage applicants, or securitization, or opposite institutional reasons,” said Dr. Stephan Meier, who was excavation at the Fed Reserve’s Centre for Activity Economics and Decisionmaking with Dr. Charles Sprenger at the measure they did the explore.

“That’s definitely chief, but in the end humans neaten those payment decisions. So there must be author psychological factors that explain how people accomplish those decisions to fail or not.”

The search testament be publicised in an upcoming issuing of Psychological Science, a journal of the Tie for Psychological Subject.

During tax season, Meier and Sprenger recruited 437 low-to-moderate income group at a dominion center in Boston that was message tax intellection improve.

Apiece somebody was specified a questionnaire in which they made choices between a smaller, quick teach and a larger reinforcement ulterior. This is a lowborn judge for sight if grouping are choice to slow satisfaction.

The questions tender diverse period periods and dissimilar amounts. The participants also agreed to let the researchers gain their ascribe scores.

Short group had berth attribute scores. A low credit win can point several problems with assets in the recent, equal failing to pay bills or defaulting on a mortgage.

“Conceptually, it does pretend sensation that how group discount the futurity, i.e. how restive they are, affects their resolve to failure on their loans,” Meier said. “Individuals cumulate debt and then hold to terminate whether to move the money or use the money for something else.”

If they don’t pay off their debt, they will somebody short-term benefits – any exchange on extremity is open for something else – but the costs/problems come often subsequent, when a landlord, mortgage lender, or someone else sees their bad payment news.

Researchers countenance that not everyone defaults on a give by select as sometimes fill retrogress their job, see a monumental scrutiny crisis or several otherwise upset catastrophic experience.

“But there is a little bit of strategic defaulting deed on, where many group change this cost-benefit analysis” – those individuals would kinda feature solon money now and sell with the repercussions subsequent.

Different values in the Credit Score Range

The highest credit score available is classed as “Excellent” and this refers to a score of 800 and higher. To achieve an excellent score, you must be extremely disciplined with your finances, making sure you pay all due loan and credit card payments in full and ahead of time. Generally speaking, you must have used a significant amount of credit (i.e., more than just a single credit card). If you are lucky enough to have an excellent score, you will never be turned down for credit by any lender or financial institution and you will be awarded the lowest interest rates on the market.

The next highest credit score is “Very good” and this refers to a score between 700 and 799. It is estimated that around 25% of Americans fall within this range, which is a good place to be. With a very good score you can be confident of being approved for both secured and unsecured loans at good (low) interest rates.

A score between 680 and 699 is a “good” score and again there should be no problem being approved for credit, but interest rates will be significantly higher than those offered to consumers with very good and excellent scores. If getting a loan is not a matter of urgency, you may want to consider putting it off to give yourself time to increase your score to around 720. You would then be able to take advantage of lower interest rates, reducing the total sum of money you have to pay back. Most people in the United States fall into the “good” category.

Lower Credit Score Range

An “Ok” or “Fair” credit score is classed as 620 to 679. Whether you are approved for credit or not comes down to each individual lender; they all have different criteria. If you are approved, your loan will be subject to high interest rates and other terms and conditions. Again, it is worth considering whether you want to take time to improve your score in order to receive lower interest rates.

A “Poor” credit score is 580 to 619 and you should be prepared to agree to some unattractive terms and very high rates of interest. Be aware that this means you will have to pay back a lot more — over a longer period of time — than the original loan amount. A “Bad” credit score is 500 to 579 and while you may still be able to get a loan, you should carefully weigh up the pros and cons before signing an agreement. If you default on payments, you will quickly make your situation even worse and may even end up bankrupt. A “Very bad” credit score (499 or lower) means that you are unlikely to be approved for credit and you should seek immediate professional help. If your score is poor, bad or very bad, you should take action to repair past mistakes and start the process of rebuilding your credit rating.

A shoddy score can wreak hell on your finances, making it nearly impossible to refinance a mortgage, lock down a loan, or even rent an apartment in some places.

So if you’re looking to trash it, here’s what to do:

Get into debt. Going on a mindless shopping spree is an easy way to send your finances to the landfill. According to Credit Karma’s Credit Score Simulator, a fair score of 640 stands to drop 10 points by racking up $5,000.

Forget to pay monthly bills. Not paying debt back fast enough got the U.S. government in hot water with S&P and it can do the same wonders for your finances.

If you want your score to tank, make late payments repeatedly, and use your credit card whenever you don’t have the cash to pay off the purchase.

Bonus: Reach for the stars and send your debts to collections, which will clip your score by nearly 40 points if it stands at a fair rating of 642, notes CreditKarma.

Raise your credit card utilization. Go ahead, max out that card! A single credit 100% utilization flaunts your irresponsibility and unwillingness to do the smarter thing and keep your balance under 30% or spread your use over several cards.

Close all your accounts. Credit, who needs it? Shut off the faucet and let the credit agencies know you could care less about accessing credit and building a future.

Or apply for tons of credit. Not only will this make you look desperate to creditors, you’ll ding your score by several points with all the hard inquiries (reviews of your report). This will tarnish your score for up to two years.

Go bust. There are lots of fun ways to do this, from getting divorced and saddled with a home in foreclosure to evading your taxes and having a lien slapped on your public record.

New research suggests that using a summary of your credit report — your credit score — to screen potential employees is not supported by the evidence. Contrary to what many employers consider common knowledge and practice, researchers found no correlation between poor credit scores and bad behavior on the job.

A credit score is the distillation of much of the information in your credit report to a three-digit number. The most commonly used credit score is the FICO score. Scores are not a permanent part of your credit file and they do not persist in the credit bureau’s databases. Credit scores are not shared with third parties — including your current or a potential employer — by any of the credit reporting agencies.

According to a 2010 poll by the Society for Human Resource Management, 60 percent of surveyed employers conducted credit checks (getting a credit report, not your credit score) for some or all candidates as part of the hiring process. But the upcoming study in the Journal of Applied Psychology shows no connection between poor credit scores and theft — although some interesting connections were discovered.

“With regards to personality and credit — it makes sense that conscientiousness is related to good credit, but what was really interesting was that agreeableness was negatively related to your credit score,” said Jeremy Bernerth, Ph.D., assistant professor at Louisiana State University.

“That suggests easygoing individuals actually have worse credit scores than disagreeable and rude individuals,” he said. Such congenial people might get themselves in trouble by co-signing loans for friends or family or taking out additional credit cards at the suggestion of store clerks, according to Bernerth.

“It was telling that poor credit scores were not correlated to theft and other deviant types of work behaviors,” said Bernerth.

“Most companies attempt to justify the use of credit scores because they think such employees will end up stealing, but our research suggests that might not be the case.”

Although the study looked at credit scores and theft, employers do not have access to a potential employee’s credit score — only their credit report. The study suggests that the summary of your credit report — your credit score — has no predictive value on whether you will steal from an employer.

Source: Louisiana State University

Auto and home owner’s insurance
Most Insurance companies these days are using credit scores to qualify and price their customer’s policies. In many cases and under certain circumstances, Insurance companies have the right to increase their premiums based on the credit standing of those they insure.

If you don’t have an excellent credit score, you could pay more. These companies will quote studies and statistics that back up their claims. Be aware that a low credit score may mean higher premiums on both auto and home owner’s insurance.

Employment
A lot of employers these days are using credit checks to screen their potential employees. With so many people looking for a job and the employer having plenty of applicants, employers can be more selective than before.

Many job seekers, particularly when applying for a job that requires them to deal with substantial amounts of money, find that their prospective employer will not hire them with mediocre credit scores. Although this seems a bit inappropriate and unnecessary to some, the logic behind the credit check is sound. Some companies simply respond, “If a job candidate can’t handle their own finances in a responsible way, how will they handle ours?”

More and more companies are using credit reports as part of their screening process and that means it will be harder and harder for those with low or marginal credit scores to find employment. If you are looking for a new job or there is a chance you will be in the near future, take the time to check your credit and do all you can to correct any errors. Then take the necessary steps to improve your score. Doing so, can remove the uncertainty about your credit, take a great deal of stress out of your job search and give you a much better chance of finding employment.

Rental agreements, loans and leases
It’s become common place that a credit check is required for renting a home or apartment or securing a loan or lease on a vehicle. Even if you have a perfect record of paying your rent on time at a previous apartment, you may still have to agree to a credit check. Landlords and rental management companies measure your credit risk in much the same way as banks and other lenders. A shaky credit report may disqualify you or cost you more. A credit check is almost a certainty when entering into a loan or lease for a vehicle.

Take preventive measures
It’s a good idea to carefully check your credit report before you apply for a job, take out an insurance policy or rent your next apartment.
And do so as early as possible so you can correct any errors on your report and get the excellent credit score that you deserve!
Find out how to clean up your credit report the easy way:

This free video presentation reveals how you can save over $90,000 dollars just by raising your credit score only 80 points!

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