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Credit Check The Importance of By: Karen Zullo Molding Your Future
What is Credit?
How does a lender determine whether or not to
Credit is money lent to you by a lender or creditor on
lend you money?
the condition that you will pay it back at a later date.
Whether or not a creditor decides to extend you credit
These percentages are based on the importance of the
The terms and conditions for receiving a credit vary by
and the rate of interest at which you borrow, is deter-
five categories for the general population. For particular
credit type and lender. Simply put, credit is borrowed
mined by a number of factors including your current
groups - for example, people who have not been using
money that you can use to purchase goods and ser-
financial obligations and monthly expense obligations
credit long - the importance of these categories may be
vices when you need them with the agreement to pay
as well as your credit history and FICO Scores.
somewhat different.
the lender or creditor back at an agreed upon time.
What is a good FICO® score?
Why Credit Matters
What is your Fico Score?
Like it or not, credit is a necessary evil and your credit
Your credit score or FICO score as it is commonly
affects every aspect of your financial life.
called is a number – arguably the single most influential number in your life and it was designed to
Obtaining and sustaining good credit or repairing less
convey to lenders the kind of financial risk they would
than perfect credit is one of the most important financial
be taking by having you as a customer. Your score is
decisions you can make. It’s a decision that is either
generated by credit analyzing software that takes into
going to cost you money or save you money in the long
account a number of different criteria. For example,
run! Either way, that cost or savings is “significant”
do you pay your bills on time? How much debt do
On average, consumers with less than perfect credit will end up paying 30%-40% more per month in higher interest rates if indeed you are able to get financed at all. In the long run this can cost you tens of thousands of dollars or even hundreds of thousands of dollars over the term of a 30 year mortgage. Also, it’s important to understand that poor credit may hinder future employment opportunities as well as your ability to rent an apartment, purchase a vehicle, obtain a credit card, qualify for insurance etc…
you have? How long have you had your accounts? Have you ever defaulted on loan agreements in the past? The process is complicated, however it does provide the lender a way to determine whether lending you money right now is really a smart move and if so, at what cost? The chart below will help you to have a better understanding of how your score is determined.
FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped in the chart reflect how important each of the catego-
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Excellent = 800 and higher With scores in this range your credit or loan applications should always be approved. In addition you should receive the lowest possible interest rates Very Good = 700-799 A great range to be in. You most likely will be approved for any type of credit or loan and you should be able to take advantage of good interest rates. Good = 680-699 With scores in this range you should typically be able to get approved but your interest rate will not be at the lowest rate, however they will still be in a reasonable range. Fair = 620-679
What does your Fico Score consist of?
into five categories as outlined below. The percentages
ries is in determining your FICO score.
Depending on the type of loan and your credit history you may find the rates you are quoted are not the best therefore costing you extra money in the long run. If you are approved, certain restrictions will apply to the loan’s terms.