| In today's environment where cash is almost | | | | credit report, looks at his score, and is ecstatic to give |
| disappearing and credit cards are used for many of | | | | him the $10,000 loan at 5%. At the end of each month, |
| our major as well as minor purchases, your credit | | | | person A will pay $212 on the loan and person B will |
| score can have a major impact on how much money | | | | pay $189, a difference of $23 out of pocket. Assuming |
| you have left at the end of the month. But, what is a | | | | that each person makes their monthly payments on |
| credit score and who assigns it? | | | | time, by the time each pays off the loan, person A will |
| A credit score is a numerical value assigned to anyone | | | | have paid about $12,750 and person B will have paid |
| who has ever had a loan made to them or a credit | | | | only $11,322, a difference of $1,426 out of pocket. And |
| card issued to them. Your personal credit score | | | | all because of a difference in a credit score. |
| consists of a number of factors such as how good | | | | You may think that to a banker you're a person. But |
| you are at making payments on time, your total debt | | | | when a banker is thinking of lending you money, he |
| load, and so on. Your credit score is calculated by the | | | | looks at you as a number, and that number is your |
| three major credit reporting companies. | | | | credit score. It's what the banker and other creditors |
| So exactly how does this tie into how much cash you | | | | use to evaluate your credit risk and to determine if |
| have at the end of the month? Let's take an example. | | | | you're a responsible enough person to lend money to. |
| Let's say person A has a score of 530, which is an | | | | In order to protect your credit and to ensure that your |
| extremely low score. And let's assume that person B | | | | credit report correctly reflects your debts, loans, and |
| has a score of 820, which is an extremely high score. | | | | repayment history, you should request a free credit |
| They both are looking for a 5 years, unsecured loan | | | | report from each of the three major credit reporting |
| from the bank for a sum of $10,000. Based on their | | | | agencies at least once a year. You will probably have |
| scores the banker may refuse to give a loan to | | | | to pay to receive the part of the report that tells you |
| person A forcing him to get his loan elsewhere at a | | | | your credit score, but it's more than worthwhile |
| higher interest rate. Or, if he is willing to give person A | | | | because it shows you what loan agencies and credit |
| a loan, it will be at the highest interest rate, let's say | | | | card companies are looking at when they approve or |
| 10%. | | | | deny your a loan and set the interest rate that they |
| Now, person B walks into the same bank and asks for | | | | offer you. |
| the exact same loan. The banker pulls up person B's | | | | |