Jul 282008

Most everyone is aware that credit scores generally determine whether an application for credit will be approved or denied. Credit decisions are made on car loans, credit cards, mortgages and most other forms of credit based on an applicants credit score. But, the affect of your credit score is not limited to what happens on the corner of approval or denial. If you are sent down the road of approval, your credit score will also determine the tolls you’ll pay.

On November 20, 2007 Fannie Mae and Freddie Mac announced loan price increases for borrowers with credit scores below 680 on loans with loan-to-values above 70%. Simply put that means that if you don’t have a 30% down payment and your credit score is below 680 you are going to pay higher closing costs and/or higher rates on your home mortgage.

Unfortunately, higher mortgage rates are just one of the ways your credit score can affect the prices you pay. When it comes to credit card debt an average borrower can easily pay twice as much or more interest as someone with an exceptionally high score. Understandably, borrowers whose credit scores identify them as low risk are offered the lowest interest rates available.

What other bills are you paying that are affected by your credit score?

Recent studies have shown that 92% of the largest automobile insurers use credit data in underwriting new business. It has been estimated that a consumer with bad credit is going to pay 20 to 50% more in auto premiums than a person who has good credit.

An Insurance Credit Score is also used to determine whether or not you will get homeowner’s insurance and how much you will pay for it! This is based on the belief that the lower your score, the higher the chance that you will file a claim, inflate a claim or commit fraud.

Clearly anyone whose credit report doesn’t identify them as a perfect credit risk is a target to pay more for all the most expensive things in their life. How much would an average family save if they could cut their mortgage and credit card payments as well as their auto and homeowner’s insurance by 20-50% or more? Is it fair that the people who may afford it least have to pay more? That is something open to debate, BUT…

It’s also been determined that 79% of credit reports contained errors errors of some kind. Twenty-five percent of credit reports contained serious errors that could result in the denial of credit.
In other words, many people are paying the toll because the information on their credit report is grossly inaccurate. If you don’t know what’s on your credit report, how to analyze the information or how to raise your credit scores you may be woefully overpaying for some of the biggest items in your families budget. Be proactive, make sure your score is as high as it can be and realize the savings you deserve.

Daniel J. Poulos
Account Executive
[email protected]

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