What You Need to Know About Credit

what you need to know about credit


A typical home purchase can cost between $50,000 and $130,000 more in interest if you are buying the home with bad credit.

An example is the costs associated with a $100,000 home paid over 30 years. See the chart below.

Credit Status   Rate   Payment Cost
Credit Perfect   7%   $655.30   $0.00
Mildly Damaged   9%   $804.62   $50,155.24
Damaged   12%   $1,028.61   $130,791.63


Anyone who has ever applied for a credit card, loan or cell phone has dealt with their credit score. This illusive three-digit number impacts the rates and terms you that will receive on everything from a mortgage to car insurance. Understanding and managing your credit scores can help you save thousands of dollars on big purchases. Here is what you need to know about credit scores:


A credit score is a numerical evaluation of your credit history used by businesses to quickly find out if you pose a risk to the company as a borrower. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries, and other elements of your credit report. You have three credit scores; one each based upon your credit reports from Equifax, Experian, and TransUnion.


Credit scores usually range from 300-850, with 680 or higher considered to be “good.” Good credit scores help you get the best deals and lowest rates on major purchases. Your credit score may fluctuate each time something changes on your credit report.


There are thousands of slightly different credit scoring formulas (including FICO, Beacon and Empirical scores) used by bankers, lenders, creditors, insurers, and retailers. Each score can vary somewhat in how it evaluates your credit data. It’s normal for your credit score to go up or down about 40 points depending on which scoring model and credit report data is used.

Your credit score improves if you:

  • Pay your bills on time
  • Have at least 3-6 open and active credit accounts
  • Have 1-2 loans
  • Keep your credit card balances low
  • Keep your accounts open for a long time
  • Avoid too many applications for new credit

Alternately, your credit score will decrease if you: pay your bills late, have too many or not enough accounts, max out your credit cards, haven’t had credit very long or apply for too many new accounts.


Checking your own credit report does not cause your credit score to decrease, contrary to popular rumor. You can check your credit reports as often as you would like without harming your credit score. Only when you apply for new credit or loans does a “hard inquiry” cause about a 5 point drop in your score.

If you have any questions, please contact our credit education experts here!

Disclaimer: When negative information in your credit report is accurate only the passage of time can assure it is removed. According to the Federal Trade Commission, a credit reporting company can report most accurate negative information for seven years and bankruptcy information for ten years.