Credit Report Score: Work The Right Way

By Daniel Wesley

Your credit report score is an important determinant of your credibility, particularly when you intend to borrow to fund your housing finance needs or a car purchase. Depending on this three-digit figure the lenders will determine your credit limit and compute interest on your borrowing. Best rates are offered to borrowers with good credit report scores, since they belong to the low risk category, whereas those with bad credit report scores do not have an alternative but to resort to expensive borrowing. Generally, the lenders offer best to those scoring 700 or higher, which means that even if you are marginally below say at about 698, it could cost you many thousands dollars more than what you would have shelled out if you managed to score just those two points.

Let's demonstrate the above point with an example - the differential between 700 and 698 scores comes to around one-half percentage point. So if you obtained a $165,000 fixed rate mortgage for a tenor of 30 years, that differential half point is most likely to cost you above $19,000 by way of interest, considering that 6% is the lowest interest rate available. Further, if your credit report score fall below 675, the interest rate that you would end up paying will rise by another 1.2%. These are just averages.

Most lenders are nowadays practicing tiered pricing, wherein interest rates rise with the credit report scores going down. Each lender chooses its ‘break-points’ between the tiers. On one hand, there are some lenders who may increase their interest rates if your credit report score is below 300. On the other hand, there are others who will not charge higher interest rates until your credit report score is below 690 or so. This means that if you intend to stick to the same lender, and if the lender considers credit report score of 700 as his break point, then your credit report score improvement to 701 could be vital.

This example underscores the significance of not just doing what you can to better you credit report score, but also shopping thoughtfully, if you are looking at getting a mortgage loan. When it comes to choosing the lender, compare the options and finalize the one who offers you the best rate for a particular credit report score. The simplest way of improving your credit report score is paying all the bills on time. If implemented thoroughly and consistently this method can improve your credit report score dramatically over a period of time. You must also inculcate a habit of checking your credit report score annually, to see where you stand in credit estimation. This will enable better planning of your finances that is bound to strengthen your credibility.

Credit Report Score Want to buy a car or a house and looking out for ways to finance it? To a lot of you obtaining a loan for the purpose may seem like a simple solution. At times, it is not as simple as it sounds, because your bad credit report score may hinder with the prospects.