At the Buzzer: Scoring One for Your Credit

Especially during uncertain financial times, getting a mortgage or other type of loan can be difficult. That's why it is important to know your credit score and the effect it may have on your checkbook, according to the Pennsylvania Institute of Certified Public Accountants.

Why it matters: Your credit score is based on your financial situation and your past history of managing your credit. Companies use this score to decide whether or not to extend you credit or a loan.

Many people understand that lenders check credit scores when an individual applies for a mortgage, a credit card, or for a car or student loan. You may not be aware, however, that your score can also be important when you try to rent an apartment.

Landlords want access to this information to help gauge whether tenants will keep up with the rent. In addition, a bad credit score could mean higher car-insurance premiums or an inability to sign up for certain cell-phone plans.

Finally, you may be surprised to learn that some employers check credit scores to get a better sense of the character and reliability of the person they're planning to hire.

Here are the facts behind the score: There are three national credit bureaus -- Equifax, Experian and TransUnion. Each one has its own scoring method, but they are typically based on one model, often known as FICO.

Credit scores generally range from 300 at the low end to 850 at the high end. The score is calculated from a number of factors. The most important is payment history, including late payments and bankruptcies. The score also takes into account how recently any problems have happened, so a payment problem several years ago should carry less weight than a recent one.

Another factor is current debt, including how much debt and how many credit cards you have. Credit bureaus also consider the length of your credit history, and whether you have long-term loans or short-term installment debt.

A weak credit score can have an actual impact on your finances. The FICO Web site (www.myfico.com) provides some illustrations based on recent interest rates. For example, the monthly payment on a $25,000, 36-month auto loan might be about $763 for someone with a high credit score (in the 720 to 850 range), because they would be charged a low interest rate as a good credit risk.

Conversely, a borrower in the 620 to 659 range would pay around $814 per month; and someone with a low score, between 500 and 589, could end up paying around $868. That's $100 more per month than someone with the best credit score.

Borrowers with a low credit score seeking to take out a 15-year home-equity loan or a 30-year mortgage could pay several percentage points more in interest on the loan, which could translate to hundreds of dollars a year.