High Cost of Low Credit Scores

I’ve said it over and over again: you need to do whatever it takes to keep your credit score as high as possible. Of course, don’t lose sleep over your score, but being a responsible consumer, paying your bills on time and effectively managing your credit score goes a long way to help save you money and lower your effective borrowing costs in many aspects of your life.

Most people realize that a higher credit score translates into lower interest rates. If you carry a balance on your credit card, having a lower interest rate can save you hundreds or even thousands of dollars ever year. But, did you know that there are a number of other areas in your life that can be impacted by a low credit score?

When it comes to getting a home loan, for example, even a difference in a couple percentage points can mean a huge difference in the amount of money you pay. If you take out a $200,000 home loan at an 8% interest rate rather than a 6% interest rate because of your low credit score, you will pay an extra $96,943.11 if you take out a 30 year loan.

A low credit score can also wreak havoc on your insurance rates, including auto, home, health, and life insurance. Did you know that approximately 92% of leading auto insurance companies take a look at your credit score when determining your rates? Homeowner insurance companies do the same thing, with many believing that individuals with a low credit score have a higher number of insurance claims.

Health and life insurance companies are equally as interested in your credit score because, if you have a history of defaulting on your bills, these companies will have to carry the burden if you fail to make your monthly premium. Obviously, this cuts into the company’s profits. As a result, health and life insurance companies are more apt to extend policies and great rates to those customers that are less likely to allow their policies to lapse.

Even your job can be at risk if you have a low credit score. As of 1998, nearly half of employers now do credit checks before they will even consider hiring a new job applicant. Even your current employer may take a look at your credit history in order to determine if you are a security risk, since it is believed that individuals with a poor credit history or that are in a great deal of debt are more likely to steal from their employers.

This entry was posted on Tuesday, March 6th, 2007 at 11:32 pm and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.