We all know that a good or great Credit Score will open up all kinds of financing opportunities at the lowest rates. We also know that a bad or low credit score will hurt us in the long run by costing us more money when we finance something.
What you may not know is that a credit score is a number that may be constantly changing on a month to month basis. The credit score is locked in at that one point in time when the report is prepared. The significance of a credit report is that it reflects the individuals' creditworthiness at that one point in time. It is all based upon risk. In other words, if you have a better credit score, the chances are that based upon your past payment history, you will be able to pay your ongoing obligations in a timely fashion, and therefore, present little to no risk to a potential lender.
If, on the other hand, you have a lower credit score, a lender may not present as favorable a rate of interest or some other unfavorable terms because of the amount of risk that the lender is assuming. If you think about it, unless you are extremely wealthy and you will never need credit to purchase a home or a car, then this system stinks.
Let's face it, life happens. One missed payment or one late payment may damage your credit and make it impossible for you to finance the purchase of a car. Or, even worse, if you are allowed to purchase the car, the interest rate will be higher. 1% or 2% may not seem like much on a car loan, but when you look at the cost of credit on a mortgage over the life of a 30 loan, you will be shocked by the amount of interest that accumulates with a 1% or 2% interest spike over 360 months. We are going to continue this conversation. For more information on Credit Reporting, please visit the Consumer Protection Program website and watch our videos.