|
Articles » Fico Score | | The Importance of FICO Score in Your Financial Future |
|---|
The rating system put in place by Fair Isaac and Company, known as the FICO scores, is the main determining factor in whether or not you receive a loan, mortgage, or even a credit card. This score, calculated by examining your credit report, is used by most major lenders to evaluate your credit worthiness. The elements taken into account when scoring include payment history of your accounts, open lines of credit, judgments against you, and even the number of inquiries made about your credit.
Do you need a good FICO credit score in order to be financially successful? In most cases the answer is yes. Unless you have a large amount of cash on hand there is a good chance that you will need to use credit to make purchases at some point in your life. The two most common occurrences of this are buying a new home or financing an automobile. If your FICO score is low, you may not be able to do either.
Even if you do get a loan approved with a low FICO score , your interest rate will be higher if you have a poor credit history. A percentage point on a thirty year mortgage could increase your monthly payments by as much as $200. This additional expense will take away available finances from other areas such as savings and retirement planning. Your net worth can’t go up if you’re paying all your extra money to the bank in interest payments.
The same can be said for automobile financing. Interest rates for buyers with good credit can be in single digits, but those with low FICO scores and poor credit will often be charged eighteen to twenty three percent in interest charges when they purchase a new vehicle. If you buy a new car that has a sticker price of $20,000 and finance it for five years, you could end up paying almost double before you’re done. Add that to depreciation of the vehicle, which starts the moment you drive it off the lot, and you might as well just throw your money in a barrel and burn it.
Having a good FICO score is definitely the key to financial success. Pay your bills on time and don’t overextend yourself with credit accounts you can’t afford. If you do have a high interest loan or car payment, pay it for a while and then refinance. Your FICO score goes up each time you make a payment and lower your balances owed.
Comments
|
|
|
|
