How Is Credit Score Information Used
By Creditors?

Credit Scores Affect Credit Availability and
Interest Rates

Your credit score gives creditors a sense of how likely you are to default on a loan.

CREDIT SCORES GUIDE LENDERS

Your credit score gives lenders a fast, objective measurement of your credit risk. It helps them determine if you are creditworthy. So the information in your credit reporting agency files is more important now than ever before because it is used to calculate your credit score. Always make sure that your credit reporting agency file is accurate before filling out a credit application.

BETTER SCORES EQUAL BETTER INTEREST RATES

The higher your credit score, the lower the interest rate you are likely to get. This applies to all forms of credit, including mortgages. When you apply for a mortgage, your credit score will determine your interest rate. A high credit score wins you a low interest rate; a low credit score ties you to a higher interest rate — which can wind up costing you thousands of dollars more in interest over the life of your loan.

THE SUB-PRIME MARKET

If you have a lower credit score, you may be refused credit or referred to a lender in the “sub-prime” market, which focuses on higher-risk applicants. You will possibly be granted a loan but at a substantially higher interest rate than if you had had a higher credit score.

ONGOING EFFECT ON CREDIT CARDS

Your credit score not only affects your ability to get a credit card but also may impact the way the issuing company handles your account once you have a card. If you have a bad payment history with other credit accounts or if you have taken on significantly higher levels of debt on those accounts, other credit card issuers can declare you to be in universal default and apply a higher default rate to your account with them, even if you are handling that account just fine. In fact, being late just once or twice on one account, such as a utility bill, car payment, or department store credit card, can trigger universal default on other accounts.