What Your Poor Credit Rating Is Costing You

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By Kelley Holland

The week after Christmas isn't just a time for cruising the post-holiday sales. For some, it's when the realization of all that spending over the last month kicks in.

After all, Black Friday got its name because in the past, it was the day when retailers first went into the black, thanks to all those shoppers.

Perhaps a look at the cost of a poor credit score will also help you mend your ways.

Experts estimate that a less-than-sterling credit score can cost you tens of thousands of dollars over the years, since you'll be paying higher interest rates on everything from mortgages to a Macy's (M) credit card -- if you can even obtain those things.

"If your credit score is high enough, you'll qualify for a lender's best rates and terms. Your mailbox will be stuffed with low-rate offers from credit card issuers, and mortgage lenders will fight for your business," personal finance expert Liz Weston wrote in her book, "Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future." "If your score is low or nonexistent, however, you'll enter a no-man's land where mainstream credit is all but impossible to come by."

That no-man's land may be closer than you think. The mortgage market is a case in point. According to Ellie Mae, an electronic network for mortgage origination, the average credit score for people taking out mortgages in November was 729. That's down from 750 a year earlier, but still high compared to historical averages.

The cost of a mortgage will increase the further your score falls below that level, said Rod Griffin, director of public education at Experian (EXPR). "If your interest rate increases by 1 percent or 2 percent on a mortgage over the course of a 30-year loan, that can cost you tens of thousands of dollars," he said. "A poor credit score can cost you several percentage points in a mortgage loan."

A truly low score can make it impossible for you to obtain credit at any rate. Insurance companies may refuse to issue you policies.
And while Sen. Elizabeth Warren, D-Mass., has introduced legislation to make the practice illegal, for now employers can use credit scores to evaluate job applicants.

What can you do to keep your credit score up to snuff?

Start with a free annual check of your credit report, Griffin suggests.

"By some estimates, fewer than 10 percent of people eligible for a free annual credit report actually get it," he said. "Every credit score is based on the information in that credit report."

There is always a chance that you have an error on your credit report, and you should do everything you can to get that cleared up. The Federal Trade Commission issued a report earlier this year saying that 5 percent of consumers had errors on their credit reports that were significant enough to affect the rating itself.

If your report is accurate, and you don't like what it says, a few simple steps can make a big difference. First and foremost, "pay all your bills on time, every single time," Griffin said. He estimates that your bill-paying behavior accounts for 30 to 40 percent of your credit score.

Second, keep your use of credit in check. Roughly another third of your credit score comes from how big your balances are on credit cards and other credit lines, relative to your credit limits -- what industry people call your utilization rate. Griffin says zero balances are best, but it is essential to use no more than 30 percent of the credit available to you on credit cards and other credit instruments.

"Also look at your utilization on individual credit card accounts," he warns. "You may have a total utilization rate that's low, but if you have one card that's maxed out, that is a negative."

Big financial problems in your past like a bankruptcy or a short sale of a home can take years to clean up in your credit report. But if your history is generally excellent, and you've just had a few screwups, mending your ways may lift your credit score quickly.

"Scorers recognize that's an anomaly," Griffin said. "If you have a few late payments, catch up and start making payments on time. It could be a few months."

Now that sounds like a resolution you could actually keep.


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frank1946

Credit Score usually full of Errors.............especially if you're married !

Avoid Joint Credit and sign a Pre-Nup to keep things normal, Marriage is a Trap.

Banks think you're Spouse is YOU.

December 27 2013 at 3:49 AM Report abuse rate up rate down Reply
Capital Stars

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December 27 2013 at 2:29 AM Report abuse -1 rate up rate down Reply
k4jlp

I can't believe in the year 2013 some idiot thinks a President (of any color) MAKES LAWS.
Go back to school and learn how Government works. The Laws of the land START IN THE HOUSE OF REPRESENTIVES, then move to the Senate for approval or disaproval then if it passes both, goes to the President for signing or veto. Why can't you people see past skin color?????? Stop typing and making yourself look like a FOOL.

December 26 2013 at 10:41 PM Report abuse +1 rate up rate down Reply
bwhitedjr

My credit report is damaged because I can't get the credit companies to remove negative credit from their reports. I've tried many times and they keep sending negative reports. I lost the chance to buy a very nice house for my family, and a car for my wife. I think the credit companies need to be monitored closely. They are destroying peoples lives everyday.

December 26 2013 at 8:22 PM Report abuse rate up rate down Reply
billhidasey1

Well its just another way for the Big corporate machine to keep the little man down!

December 26 2013 at 5:01 PM Report abuse rate up rate down Reply
1 reply to billhidasey1's comment
billhidasey1

And you Know me HOW?

December 26 2013 at 6:07 PM Report abuse rate up rate down Reply
Della Jean

its SAD they (CORPORATE AMERICA) judge people by a numbers ..Just to get a loan and getting a JOB.. They should be ashamed of themselves . People fall on difficult time..in their lives

December 26 2013 at 4:17 PM Report abuse +4 rate up rate down Reply
trean29

What my bad credit is costing me. (Yes I said bad because it is waaaay beyond poor!) My bad credit is costing me absolutely nothing! I own my home and will never refinance. My two vehicles are paid off and if I am ever in need of a new one I will buy it directly from a private owner as opposed to a dealership. I don't use credit cards, if I can't pay cash then I don't need it. I have owned my own business for 14 years now, so I am in no jeopardy of not getting a job because of my bad credit. My business hit the toilet when the Real Estate Market crashed. I am a Certified Commercial Appraiser. Lucky I was smart enough to invest and was able to survive it. Even with the crappy credit I have, my car insurance and home insurance has remained the same. When Allstate tried to increase my insurance, I switched companies. Problem solved! In my State, I can get a credit report free once a year, I have no desire to even see it because I really don't care! It is what it is! Once I cut all that crap loose, my life has been much better.

December 26 2013 at 2:15 PM Report abuse +3 rate up rate down Reply
1 reply to trean29's comment
davefromfwb1

Same with me....I am exactly like you. I had bad credit and after starting my own business 10 years ago I haven't had a problem at all. My credit score today is 740 and back 5 years ago, banks wouldn't even talk to me because I had a 525 score. Now if I want a truck I just go out and pay cash for one and I have two trucks that are paid for. I have 1 credit card I've had for the past 7 years and I pay it off if I ever use it. I absolutely hate to use credit card for anything. I think happiness and financial security is knowing that you don't need EVERYTHING like you think you do....I'm happy knowing that everything I have is paid for and when I see someone driving a expensive car I look at their face and they don't look happy at all! ha ha Happy New Years!

December 26 2013 at 3:15 PM Report abuse +2 rate up rate down Reply
Davie2743

I have a credit score of over 800 and was told I do not qualify for any mortgage.

December 26 2013 at 2:14 PM Report abuse +1 rate up rate down Reply
ivyteainn

Do not loan money from the banks. Credit reports are just a way to scare you into submitting to them. All you have to do is practice financial responsibility. Don't become a slave to interest. Stop wasting money on frivolous things. That's what the bank wants you do. You can bring them to heel. Do not blame the banks for your current mess, blame yourself. The bank is a mere parasite.

December 26 2013 at 1:39 PM Report abuse +2 rate up rate down Reply
Ron

Even your car or home insurance company will increase your rates because of your credit score even if all of your payments to them have been on time every pay period to them! Any way to get more money out of you.

December 26 2013 at 1:35 PM Report abuse +3 rate up rate down Reply