Borrowing By The Numbers
Credit scores often most important factor in credit approvals
For Immediate Release: June 27, 2002
ROCKVILLE, Md. — If you're not paying attention to your credit score, you might be paying too much for your credit cards, mortgages and car loans, or you might not be approved for new credit.
"Credit scoring is the concern that comes up most often with our clients," said Steve Rhode, president and co-founder of Myvesta, a financial health center. "People are realizing that their credit scores are becoming more important, although few understand what they mean or what they can do to make their scores better."
The exact scoring formula is not disclosed, but certain factors are known that affect a credit score. "Your payment history, amount of debt and the types of accounts you hold are all taken into account when your credit score is calculated," Rhode said. "The length of your credit history also plays an important part; the longer your history the better."
A better score could mean big savings. The difference of one percentage point in interest on a $150,000 mortgage means a $100 savings every month. That adds up to $36,000 over the life of the loan. That calculation compares a 6.5-percent interest rate to a 7.5-percent interest rate on a 30-year loan.
Rhode offers these general guidelines to explain what a credit score means:
- 700 and up: This is considered an excellent score and most lenders will give you an "A" rating. You will have access to the best interest rates.
- 600 to 699: A score in this range is considered good and most lenders will give you a "B" rating. You might still qualify for good interest rates, but you will most likely not have access to the lowest rates offered.
- 500 to 599: This score means you've probably had some past due payments or may have an account in collections. Most lenders will give you a "C" rating and you will most likely have to pay at least 2 percentage points more than people with excellent credit.
- 499 and below: A score in this range means you may have had liens against your property, or a lender may have sued you or foreclosed on your property. You might still be eligible for a loan, but the rates may not be favorable.
To learn more about what your credit score means to you, read the free publication, "Credit Scoring: How it Works and How You Can Improve Your Score." Download the publication by visiting Myvesta.org online.
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MyvestaSM is dedicated to helping people create healthy financial lives. The organization provides a wide range of materials to inspire and inform people so that they can break down their barriers to financial and personal success. For more information visit Myvesta.org online.
