► Debt Consolidation - Mortgages

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Effects of Scoring

Your credit score doesn't just affect whether or not you get a loan; it also affects how much that loan is going to cost you. As your credit score increases, your credit risk decreases. This means your interest rate decreases. The chart below, from myFICO.com, shows an example of how interest rates for a car loan can vary based on your credit score:

FICO� Score
Auto Loans

� 500-589

� 590-624

� 625-659

� 660-689

� 690-719

� 720-850

36-month new auto loan

� 18.597%

� 16.206%

� 12.225%

� 9.498%

� 7.386%

� 6.674%

48-month new auto loan

� 18.598%

� 16.206%

� 12.225%

� 9.500%

� 7.390%

� 6.678%

There are other factors that influence the interest rate you get for a loan besides your credit score. Things like the type of property you are using the loan to buy, how much of your own money (equity) is going into it, the costs the lender has to make the loan, etc.

In addition to banks and lenders, there are landlords, merchants and insurance companies jumping on the credit score bandwagon. Of all of these, the fact that insurance rates are being determined by credit scores is causing consumers the most alarm. To most, it seems that your credit history and your driving record have little in common. Insurers, on the other hand, have found that using credit scores to predict how likely someone is to pay premiums has helped them cut their losses. They don't use the same score that banks and lenders use, however. They use a slightly different formula for their calculations and actually call it an "insurance score."
Insurers' use of credit histories to determine rates is under scrutiny nationwide. Many states are passing laws restricting this practice. Washington, Utah, Idaho and Maryland have already done so, and 20 more states are considering it.

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