Credit score affects financial future

By Marshall Loeb, CBS.MarketWatch.com
Sept. 23, 2004

NEW YORK (CBS.MW) -- Landlords, employers, bankers and credit-card company executives all look at it when deciding if you are a financially responsible individual.

But most people don't understand what a credit score is, or what constitutes a good or bad score, according to a survey by the Consumer Federation of America and Providian Financial.

This score is an analysis of your past credit history. Determined by your credit decisions, a credit score is calculated by credit bureaus and then used by lenders to figure out how much of a risk you are. Scores range from 300 to 850. The higher your score, the better.

Factors assessed include: Your payment record (late payments and penalty fees), your amount of debt, the length of time you've been using credit (a longer history is better), how often you've applied for new accounts, how and when you take on new debts, and what kinds of debts you currently carry (student loans, mortgage debts, credit-card debts, etc.).

The median credit score is about 725, says Janet Bodnar, executive editor of Kiplinger's Personal Finance. If your score is 725 or higher, you'll be eligible for a lender's best rates. The lower your score (and, hence, the riskier you are), the higher your interest rates will be and the more you'll pay in associated finance charges. If your score is in the low 600s or below, you may be denied credit.

Most of those surveyed also didn't understand that lenders aren't the only ones to look at your credit score. "Your score is a measure of your financial responsibility," says Bodnar. People who might hire you, rent an apartment or house to you, sell you electric power or life insurance, among other goods and services, may also view your score to determine risk.

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