Look At Your Credit Report, A Low Score Can Cost You Money

What does a credit score mean to you? I will tell you. It means $$$$$$$, it means money in your pocket or money out of your pocket depending on how high or low your score is. It also means convenience. Your credit score can determine a lot things within your financial situation. The higher your credit score the better.

A credit score in the area of 700 to 800 is really excellent. The highest score you can receive is some where around 850 to 900. When your score starts to dip below 625 then you should start to be concerned. If you apply for a credit card some card companies run your application through an automated credit processing system which will reject your application if the score is not high enough. Now certainly there are probably some items on their that you could explain but you are never given that opportunity because of your credit score. So the convenience of having a credit card is taken away from you.

Sometimes you can get approved but the interest is higher than the standard rates being offered and if you don't pay off your balance in full you are subject to paying more interest each month. Each month more and more of your hard earned money is going to interest and it takes you longer to pay off your balances. This is taking money out of your pocket.

If you apply for a mortgage loan your credit score is a major determinant regarding whether you receive a 5% interest rate or a 7% or 8% rate. Over the life of a 15 or 30 year mortgage that adds up to thousands and thousands of dollars being taken out of your pocket. Of course after you make a year or two of payments you can always refinance if your credit score has improved and get a lower rate. With this scenario you are subject to more costs to refinance your mortgage and depending on the size of the mortgage and your own situation it could cost you thousands of dollars.

Also any type of derogatory credit that is not yours can also lower your credit score. That's why it is a good idea to check your credit report at least once a year so that you can clear up any discrepancies. This will keep your credit score in great shape and increase the score.

Sometimes we add authorized users on our credit cards and this too can have a negative impact depending on the situation. First of all let's explain what an authorized user is. This is someone you have authorized to make purchases on your credit card account. Normally they have a credit card in addition to you, but an authorized user is not legally bound to make any payments on the account. The responsibility lies with you. If your credit card goes delinquent the card company will call you not the authorized user. So if they purchase $5,000 on your card, (remember you gave the permission to do so), and you cannot pay and it becomes derogatory it will lower your credit score.

So it is best to keep your credit score as high as possible so that you can save yourself some money over the short and long term.

How do you keep your score high? First of all pay your debts on time. Whenever you pay late it affects your credit score in a negative way. You also want to make sure you don't close any accounts after you pay them off. That can reduce your score as well.

Let me show you how this works. If you have a credit card with a $5,000 line of credit and a zero balance that means your available credit is $5,000. Your credit score is affected by the amount of your available credit you use. So now let's say you go out and purchase $2,500 of merchandise. The remaining available or unused credit is $2,500, or in other words you have used 50% of your available credit. Companies start frowning on this when you have used about 40 to 45% of your available credit. So this is a bad situation.

If we take another scenario where you have the same credit limit of $5,000 with a zero balance. These examples are assuming you have no other credit cards. Now you go and close out this credit card because you have a zero balance. Guess what you now have no available credit and this can reduce your credit score.

So just remember this higher your credit score the better.

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