It is no secret that having a credit score that is ranked low will create higher interest rates from lenders because you are considered a credit risk. Most people have only a vague understanding of this and are surprised by the often devastating effects this can cause.

For instance, a $200,000 home that is on a 30 year fixed mortgage at 8% interest instead of 6% interest will have a dramatic effect. The 2% higher interest rate due to low credit scores will cost you a total of $96,934.11 over the term of the loan! Consider how many years of work that equates to in paying just that 2% difference.

There are other places in life that a low credit score will actually increase your cost of living on a yearly basis. Not only will you be paying more for your home loan, car loan and credit cards a low credit score often cause you to pay extra in the following areas:

1. AUTO INSURANCE. The vast majority of the 100 largest personal auto insurers use a person’s credit information to underwrite a new client. This snippet is based on a 2001 study that was conducted by Conning & Co; an insurance research and asset management company.
2. HOMEONWNERS INSURANCE. Many insurance companies relate a low credit score to a greater risk of property insurance claims. This often results in a low credit score earning a higher homeowners insurance rate.
3. LIFE and HEALTH INSURANCE. Increased costs are passed onto the insurance company when customers are unable to pay their insurance premiums. The means the insurance company takes a loss when they are left with unpaid medical bills. This to relates to low credit scores as they are the consumers who are more likely to lapse in their premiums; hence the cost of insurance for credit risks are higher.

All of the above mentioned places are often expected areas effected by a low credit score; however, a more shocking and unexpected place effected by a low credit score is in employment. Currently it is estimated that over 40% of employers perform credit checks on their applicants before hiring them. This is based on a 1998 survey conducted by the Society for Human Resource Management.

Certainly, employers often report that they do credit checks simply to verify the information on the application is correct, such as addresses and previous employment. It can more than likely be safely assumed that they are also taking the liberty to see how you have conducted your finances. This is unfortunate since as many as 79% of all credit reports contain errors, according to the Public Research Interest Group, also known as PIRG. Of these 79% of errors, 25% are thought to be serious enough to cause the denial of credit to be extended.

According to Ed Mierzwinski, the director of PIRG’s consumer program; “it’s outrageous that the credit bureaus are claiming their scores are accurate enough to take people’s lives and screw with them like this”. This casts a shadow over the consumer credit report as the consumer begins to realize the full impact of a bad credit report.

J Stromsteen has many years expertise in the finance, real estate, and insurance industry. She contributes to various websites such as First Time Home Buyer where you can find detailed information on getting a First Time Home Buyers Loan .

The concept of credit and credit reports is quite complex, and several factors go into your credit report. This includes outstanding loans, paid loans, credit card accounts, and even your medical history. Companies that prepare credit reports and track consumer credit history are called Consumer Reporting Agencies, or credit bureaus. These bureaus sell credit reports to businesses and lenders, and they also provide them to consumers themselves. You can check your credit report free once a year from the major credit bureaus; Equifax, Trans Union, and Experian. If you utilize each bureau, that means you can request up to three free reports a year. Once you go beyond three, or want to use a credit bureau twice, there is a fee (usually only about nine dollars).

The benefits of reading your credit report are numerous and should be taken advantage of by everyone. On the report, you can see nearly everything about your financial activities. The report lists your bank accounts, accounts with various companies, credit cards, lender accounts, and the names of people who obtained your report in the past year.

Why should you check your credit report? For one, it is good to know where you stand before you try to get a mortgage, new car, or other large purchase. A more important reason to check is to find errors. Keep in mind, this report determines whether or not you can get a house, so it is critical that you know all about it. Humans prepare credit reports, and what inherent quality do people have, human error. Therefore, it is quite likely that a part of the report could be fallacious. It is up to you to correct any mistakes, so make sure to order your report at least three times a year. To correct any mistake, simply call the Consumer Reporting Agency and notify them of the error.

Identity theft has become a major problem lately. Although most people do not think it will happen to them, it most certainly can. By occasionally checking your credit report, you can easily find anything suspicious, and then immediately take appropriate action to rectify the situation. Otherwise, you may not find out for months that you have been a victim, and by that time, you already have a pile of debts to deal with. If you discover you have been a victim of identity theft, you can freeze your reports with all of the major credit bureaus, which protects you from any further damage.

Credit score is the single most important piece of information on the credit report. That one number affects nearly your whole financial life. The way credit bureaus arrive at that number is relatively straightforward. They factor in your payment history, outstanding debt, types of credit you have, the length of time you have had credit, and more. Although each credit bureau has their own specific system, the number usually ranges between 300 and 900.

To improve your credit score, there are many measures you can take. The most important is to pay your bills on time. If you do this one thing, over time, eventually you will achieve a high score. You can also reduce your balances on credit cards and spread your debt around to several different cards. As long as you stick to a solid financial plan, your credit score is guaranteed to consistently rise.

Check your Credit and get your Credit Reports today.

This new, more fair system of credit scoring has been in the works for several years and is designed to “better differentiate “good risk” borrowers from “bad risk” ones and give creditors a more accurate prediction of default. A consumer in good standing could see his or her score go up by as much as 25 points under the new formula.”

Speaking specifically, this means three important things for consumers

1.  Occasional mistakes will be forgiven over time
2.  Shopping around for a loan will hurt you less
3.  Having a few kinds of credit works in your favor

The details behind all three points are well worth reading but in short, this is a welcome and helpful change in light of our presently troubled economy.

Read the full post at CNNMoney.com.

Improving a poor credit score requires a lot more than wishful thinking and a repentant heart. A solid plan and time are necessary to transform an ugly duckling report into a beautiful swan. This article by Darren Yates offers some practical pointers on how tackle this often daunting process. — DH

When you receive your credit report and credit score, the first step is deciding where you stand and where your main problems may lie:

• Have you defaulted on a loan, failed to pay taxes, or recently been reported to a debt collection agency?
• Do you have too much debt?
• Too many unpaid bills?
• Have you recently faced a major financial upset such as a bankruptcy?
• Have you simply not had credit long enough to establish good credit?
• Have you defaulted on a loan, failed to pay taxes, or recently been reported to a collection agency?

The problems that influence your credit problems should dictate how you decide to start to repair your credit score. As you read this article, make a note of those tips that apply to you and from there develop a checklist of things you can do to improve your credit situation.

When you take professional credit help, counselors will commonly work with you to help you develop a personal strategy that directly confronts your financial history and credit problems. This article allows you to develop a similar strategy on your own in your own time and at your own cost.

When developing your action plan, know where most of your credit score is coming from:

1. Credit history (can account for more than a third of your credit score). Whether or not you have been a good credit risk in the past is considered the best indicator of how you will react to debt in the future. For this reason, loan defaults, late payment, bankruptcies, unpaid taxes and other debt responsibilities will count against you the most.You can’t do much about your financial past now, but starting to pay your bills on time - starting today - can help boost your credit score in the future.
2. Current debts (can account for approximately a third of your credit score). If you have lots of current debt, it may indicate that you are stretching yourself thin financially and will have trouble paying back debts in the future. If you have a lot of money owing right now, especially if you’ve borrowed a lot recently, this fact will bring down your credit score. You an boost your credit score by paying down your debts as far as you can.
3. The length of time you’ve had credit (can account for up to 15% of your credit score). If you’ve not had credit accounts for very long, you may not have enough of a history to let lenders know whether you make a good credit risk. Not having had credit for a long time can affect your credit score. You can counter this by keeping your accounts open rather than closing them off as you pay them off.
4. Types of credit you have (can account for about one tenth of your credit score). Lenders like to see a mix of financial responsibilities that you handle well. Having bills that you pay as well as one or two types of loans can actually improve your credit score. Having at least one credit card that you manage well can also help your credit score.

As you can see, it’s only possible to estimate how much a certain area of your credit report affects your credit score. But, keeping these four areas in mind and making sure that each is addressed in your personal plan will go a long way towards making your personal credit repair plan comprehensive enough to boost your credit score effectively.