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How Does a Low Credit Score Affect My Interest Rate?

Lenders estimate your ability to pay back money based on your credit score. The risk factor they take on is built-in to your interest rate as a financing fee . Therefore, a low credit score results in a higher interest rate, higher monthly fees, and a higher amount of interest being paid over the total life of the loan.

The following chart illustrates the difference in the amount of interest paid over the life of the same loan with three different credit score scenarios. A borrower who increases his or her credit score from 620 to 720+ can potentially save $601 per month on mortgage payments, $7,214 per year, and approximately

Disputing Errors On the Credit Report

If you are in the process of reviewing your credit reports, the first thing to do is make sure that the information contained within the reports is correct. In June 2004, The U.S. Public Interest Research Group published the results of a survey it conducted involving 200 adults in 30 states to test the validity of credit reporting.

Their findings were as follows:

• Twenty-five percent (25%) of the credit reports contained errors serious enough to result in the denial of credit;
• Seventy-nine percent (79%) of the credit reports contained mistakes of some kind;
• Fifty-four percent (54%) of the credit reports contained personal demographic information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;
• Thirty percent (30%) of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

SOURCE: U.S. Public Interest Group Research; One In Four Credit Reports Contains Errors Serious Enough To Wreak Havoc For Consumers, US PIRG Press release, 06/17/04
http://uspirg.org/uspirgnewsroom.asp?id2=13650&id3=USPIRGnewsroom

If you find that you have errors on your credit report, follow this
procedure to correct those errors.

1. Make a copy of the report and circle the item(s) you are questioning. Keep your original copy for your own records.
2. Prepare a letter to the Credit Reporting Agency (CRA) that provided you with the report in question, and request to have the erroneous item(s) removed. If you have proof of payment for an item in question, include a copy of that documentation.
3. Prepare a letter to the creditor reporting the problem, especially if you feel you are a victim of fraud or identity theft. Inform the creditor that you are disputing an error
   reported to the Credit Reporting Agency (CRA), state why the claim is inaccurate, and include any relevant documentation to prove your point.
4. Send your correspondence via certified mail.

You should receive a response from the Credit Reporting Agency (CRA) within 30 to 45 days.

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