Our credit report has always been referred to as a financial report card on how well you manage your finances. It contains everything about you; your social security number, date of birth, employment information, addresses where you lived, credit accounts, when and who you applied for credit with, public records, payment history, how much debt you owe, and on and on.
Although each major consumer credit reporting agency reports this information differently, all consumer credit reports contain similar categories of information. But what’s a major cause for concern is among all the billion pieces of data that gets collected on a daily basis among all these credit agencies mistakes do occur. Errors such as mismatched data, mixed file errors, closed accounts reported as open, incorrect accounts resulting from identity theft, outdated information, inaccurate payment reporting, duplicate accounts, derogatory accounts reporting past seven years, balance errors, credit limit errors, and the list can go on.
Each of these errors can cost you hundreds if not thousands of dollars in interest and payments. For example, just a single balance error where your report shows that you reached your credit card’s limit can have a negative impact to your credit scores since it shows you having a much higher debt to credit ratio than you actually have. Whereas the reality is you paid off the amount owing completely and your balance should show a zero amount owing.
So how much is less than perfect credit really costing you?
Did you know a credit score drop can affect your interest rate when buying a home which can cost you thousands of dollars over the life of the loan? Thinking about getting a credit card? Think again, because the higher interest rate you’ll get will take a big chunk out of your wallet. Worst of all a low credit score can even impact your ability to land employment!
It’s important to realize, from a lender’s perspective, your credit score means the level of risk involved in extending credit or lending money to you. Lenders use credit scores such as FICO® in order to decide if you are creditworthy. In today’s credit industry, you need a FICO® score of 720 or higher to get the best available rates and terms.
For example, a consumer with a credit score of 770 will end up paying $1,963 per month for a mortgage and two car loans, while a consumer with a score of 560 will end up paying $2,369 per month, which is over $400 more!
When it comes to insurance, insurance companies say credit scores play a factor on the premiums you will pay. According to the Insurance Information Institute, an individual with a lower credit score is more likely to file a claim compared to an individual with a higher credit score. Did you know 92 percent of insurance companies in the U.S. use credit information when underwriting new policies?
Here is an actual table from a major auto insurance company showing how they determine rates based on scores.
739 and higher get a 30% discount
723-738 gets a 25% discount
651-722 gets a 20% discount
625-650 gets a 12% discount
587-624 gets a 4% discount
586 and lower gets no discount at all
Since your financial report card (your credit report) plays such a significant role in your financial life, it’s important that you improve your credit scores and ensure the information in your credit reports is accurate and up to date. You should check your credit reports on a regular basis and closely monitor them for any sudden changes or mistakes.
Unfortunately, a recent survey revealed that nearly 80% of all consumer credit reports contain error or mistakes of some kind. Don’t let less than perfect credit cost you or deny you credit because of inaccurate information. Start a personal credit recovery plan and correct any mistakes you identify as soon as possible.