You Too Can Repair Your Credit and Achieve Financial Freedom!

A good credit rating is the most valuable thing we have when it comes to financial independence! Your credit score (also known as your FICO score) is basically a numeric value representing your creditworthiness (the likelihood that the person will pay debt in a timely fashion).  Your score is derived from the information on your credit report, sourced from credit agencies.  Your credit report will have a significant affect on your life, so why is it that so many people pay little attention to their credit report?!  Truth be told, many Americans have not even LOOKED at their credit report.  The way I see it, there are two reasons a person would choose to disregard such an important aspect of their finances (and therefore overall quality of life).  Reason one, he or she simply does not recognize the importance of their credit score; or two, as a result of past negligence in bill payment and/or debt repayment, he or she has avoided coming face to face their credit report.

How Your Credit Score Affects You

Whether you look at your credit report of not, it’s going to be there affect your ability to get credit, at what interest rate, and what credit limit you’ll be granted.  There are many instances where you’ll look to borrow money from a lender to pay for something later where you’ll need to be extended credit.  When you borrow money you contract with the lender to pay the money back within specific terms and usually with (interest in addition to the original some of money).  Interest is a percentage of the original money borrowed that is added to the balance due back to the lender.   Banks, credit card companies, auto loan lenders, home mortgage lenders, mobile phone companies and insurance companies all use credit scoring to evaluate the potential “risk” (of non re-payment) you pose. A negative credit history can cause you to miss out on lots of important opportunities in life.

Breakdown of Credit Scoring

Most scores will range from 300 to 900, with the average American credit score being 677. Keep in mind, the higher your score, the better the terms of the credit you will qualify for.

Below is a breakdown of score ranges and what kind of terms borrowers can expect at various levels:

680 or higher – A score of 680 or above indicates a very good credit profile. People falling into this range will usually be able to obtain credit quickly and at a good interest rate.

620 to 680 – Scores between 620 and 680 are also very good and typically where most credit scores fall. These consumers may find that potential creditors could require additional documentation for larger loans and the loan process may take longer as a result.

620 or less – This score brings higher interest rates for borrowers. If credit is granted, the process will take longer and will be on less than ideal terms. Borrowers will pay significantly higher interest rates than those in the 700 or higher credit score range, and in some cases, credit may be denied.

Here’s a snapshot example of how a variation in credit score can lead to a drastic increase in single monthly payment. The following table is based on a $100,000 30-year fixed mortgage from myfico.com.