Credit score is a term people generally overlook till the time they plan to make a major financial decision, like buying a home or starting a business. Your credit score determines your chances of being approved for any type of loans or obtain credit. Lenders use your three digit credit score for determining the risk associated with approving you for a loan or credit card.
The impact of bad credit score might not be apparent right now, but it can cost a lot in the long run, especially in the form of interest rate you are required to pay for a mortgage, car loan, student loan or home equity loan.
Here is an example to clarify the crucial role played by credit score in your financial future. Imagine you borrow a fixed rate mortgage of $200,000 for a period of thirty years. Considering your current credit score falls between 760-850, which is excellent, you will be charged an interest rate of 3.6% on the loan. So you will be making monthly payments of $909. For a credit score of 620-639, the interest rate will be 5.2%, thus requiring you to pay $1,098 as monthly payment. The difference of $189 in monthly payments will sum up to $68,040 when added for the entire loan term of thirty years.
Example mentioned above makes it clear how a small difference in your credit score can impact your finances considerably. So make sure that you improve your poor credit score by taking timely steps or if you already have a good credit score, then maintain it by keeping a check on your earnings and expenditures.