Your Credit Score: Understanding What your FICO Means to You

In today’s environment of foreclosures and job losses, many people are seeing their credit scores plummet.  What happens to you as a result of your credit score dropping?  Some things you can expect to happen is that you will pay more for credit of any type, you will pay more for insurance of any type, and you very likely might miss out on great job opportunities as well.

Your credit score, also called your FICO score, is a numerical representation of your credit worthiness.  Your FICO score is generated by the three credit bureaus, TransUnion, Equifax and Innovis.  The entire purpose of your credit score is to let lenders and insurance companies know what kind of risk you are to lend to or insure. 

While it’s easy to see how your credit score would affect your ability to get a new loan or a new credit card, the effect on your insurance rates is a bit harder to understand.  Insurers today use your FICO score as a judgment about how well you pay your bills and consider people who have lower scores to be a greater risk to insure.  The thinking is that when you are in dire financial straights you are more likely to file an insurance claim on your home or vehicle.  Because of this, you will pay more for insurance when you have a lower FICO score.

 In addition to a higher interest rate for credit and higher insurance rates, your lowered FICO score can also cost you a potential employment opportunity.  Many employers today run your credit score to see how well you manage your money.  It is believed that people who have a lower score are more likely to steal from their employer.  Also, people who are in charge of other people’s money are though to be less trustworthy if they have lower score, which is said to be proof that someone cannot effectively manage their own money.

The best thing you can do to preserve your credit worthiness, and leave your options open for employment, is to keep your FICO score as high as possible.  To do this, always pay your bills on time and do not allow foreclosures and late payments to happen.  Once your score had dropped, it can be hard to recover it back to a good number in less than a few years time.