By: Laura Walton AFC®
…the 5% of us who have an error on our credit report serious enough to knock our credit score down a tier or two and make it likely that we are charged higher lending and insurance rates? There are 10,000,000 of us in that 5%.
“These are eye-opening numbers for American consumers,” Howard Shelanski, director of the Federal Trade Commission’s Bureau of Economics, said in a prepared statement. “The results of this first of a kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.”
But how much does this really cost us? You’d be surprised…
According to the Loan Savings Calculator at myFICO.com, a borrower in the highest tier (760-850) would pay $1312 a month for a $300,000, 30-year mortgage at 3.29%. A borrower with a credit score of 699, just 61 points lower, would pay a higher rate (3.692%) and a higher monthly payment ($1379). The difference is $67 a month, not so much, but over the course of 30 years adds up to $24,120. And, take the next step; what if you invested that difference at 8% for 30 years? The $24,120 becomes an eye-popping $91,079!
And it’s all too easy to drop from one tier to the next. Just one late payment can drop your score between 60 and 110 points and the higher your score is to begin with, the further it drops. In a future blog, I’ll review the five categories on which your score is based.
Our credit score is based on the information in our credit reports. Unfortunately only about 10% of us look at our credit reports even though the Fair Credit Reporting Act allows us to do so annually at no charge. There are three credit reporting agencies (Equifax, Transunion and Experian) and you can check your score with each once every 12 months. (Note: By rotating the three agencies, you can effectively check your report every four months). What to look for? Inaccurate information and unauthorized or unfamiliar activity.
You can get your FICO score at www.myFICO.com at a cost of about $20. Other types of credit scores can be obtained for free on other sites but the FICO score is the one most commonly used by creditors. Visit the authorized website, www.annualcreditreport.com, to check your credit report. These two actions take but a few minutes and go a long way to protecting yourself and your pocketbook!