More For Your Money - University of Illinois Extension

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What Is Your Credit Score?

Another tool that creditors use is the credit score.  The credit score is a three-digit number that evaluates your creditworthiness.  It helps lenders decide how much risk they will be taking before giving you credit.  It gives the most accurate picture of credit risk possible using credit report data. 

  • Your credit score is created using information that each of the three credit bureaus has about you in your credit report.  It is not part of the credit report itself.  It is a separate report that shows a summary of your credit history.
  • The score is used to set the “price” of your loan – how much, interest rate, etc.  The score does not indicate whether you will be a good or bad customer, but it does provide a guide for the lender.
  • The higher your score, the lower the risk.  Therefore, the interest rate on your loan should be lower.  When you have a low credit score, the interest rate will be higher.
  • You want your score to be over 620. The median credit score in the United States is 723. 

Activity

The sample below shows how low credit scores add to the cost of your loan.

Credit Score
APR
Interest Cost
(for $1,000 loan for 2 years)
720-850
6.165%
$65.33
700-719
6.290%
$65.26
675-699
6.828%
$69.71
620-674
7.978%
$81.79
560-619
9.980%
$103.34
500-559
10.695%
$111.16

What is the difference in interest cost between a loan with a 525 score and a 750 score?

$

A higher credit score really makes a difference!

Go to http://www.myfico.com/myfico/CreditCentral/LoanRates.asp to calculate how much your credit score can affect the cost of your loans and save you money.