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VA Streamlines and Bankruptcies

Friday, July 16th, 2010

Does a BK have any effect on a VA streamline refinance? This is a question that gets asked by Veterans almost every day. The simple answer is YES! The requirements or guidelines are much different than if you were trying to purchase a home. I might add that it also depends on if the Bankruptcy was a chapter 7 or  chapter 13.

The difference between a BK 7 and 13 is this – Chapter 7 involves a complete liquidation of debts listed in the bankruptcy whereas the Chapter 13 involves debt restructuring by paying a trustee every month who in turns pays the debts listed on the bankruptcy.

Here is what the VA says on a streamline refinance bankruptcy – “Although no underwriting is required, approval of new credit may be required by the trustee in a chapter 13 BK” This is always the case. If a Veteran is paying on a chapter 13 BK they must get special permission from the courts and trustee to refinance their VA loan. Things are different for a Chapter 7. Most lenders will do a streamline refinance just as long as the Chapter 7 bankruptcy is discharged.

Remember though that the rules of late payments and minimum credit scores are still applicable. A Veteran cannot have any 30 day late payments on the mortgage within the last 12 months and must have a credit score of at least 620. If a Chapter 7 has just been discharged chances are the credit score is not going to be 620 and thus making them ineligible for the streamline refinance. Please understand that the credit score requirement IS NOT VA! This is a lender overlay.

If this information has been helpful or you have additional questions please contact me at 1-888-657-2848 ext 222.

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Uncovering the Details in your Credit Report

Tuesday, June 8th, 2010

Many people believe that your credit report contains intimate personal details of your life, investigated out from interviews with your neighbors, your ex, and your business associates. Not true! You can rest assure that your credit report does not reveal whether intimate things about you.

The information in your credit report is specific, purely factual, and limited in scope. What is lacks in scope, however, it makes up for in sheer volume of material and length of time it covers. For example if you were to cut class, chances are that no one will notice, but if you fail to pay a bill on time, a multibillion- dollar industry will notice, record it, and tell everyone who asks about them for the next seven years!

Here’s a short list on what’s in your credit report:

Personal identification information such as your name, social security number, addresses (present and past), and your most recent employment history.

Public-record information on tax liens, judgments, bankruptcies, child-support orders, and other official information.

Collection activity for accounts that have been sent to collection agencies for handling.

Information about each credit account, open or closed (also known as trade lines), such as whom you owe, the type of account ( such as a mortgage or installment account), whether the account is joint ( shared with another person) or just in your name, how much you owe , your monthly payment, how you’ve paid (on time or late), and your credit limits.

A list of the companies that have requested your credit file either for promotional purposes (like sending you a great offer) or in response to your request for more new credit. Note: The companies that look at your report for promotional purposes don’t appear on the report that prospective creditors see, but they do appear on the copy you can request for your own review.

An optional message from you that can be up to 100 words in length and that explains any extenuating circumstances for any negative listings on your report.

An optional credit score. Your credit score is, strictly speaking, not part of your credit report but an add-on that you have to ask for, Just as the information in your credit report may vary from one bureau to another, so your score may vary.

Credit report used to be very difficult to read. Most of the data appeared in a nearly indecipherable numeric code, which was mystifying to the average reader. Today, although there’s still room for improvement, credit reports are more readily understood by the average person. Each of the three major credit-reporting agencies reports similar credit information but each in its own unique format. Remember: The credit-reporting agencies are competing with each other for business, so they have to differentiate their products.

Among the list of items not included in your credit report are your lifestyle choices, religion, national origin, political affiliation, sexual preferences, friends, relatives. Additionally, the three major credit-reporting agencies do not collect or transmit data on your medical history, checking or savings accounts, brokerage accounts, or similar financial records.

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How veterans and military families can get a copy of their credit report

Monday, May 10th, 2010

Your credit report contains information about where you live, how you pay your bills, and whether you’ve been sued or arrested, or have filed for bankruptcy. Consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home. The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information in the files of the nation’s consumer reporting companies.

Some financial advisers and consumer advocates suggest that you review your credit report periodically. Why?

  • Because the information it contains affects whether you can get a loan — and how much you will have to pay to borrow money.
  • To make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
  • To help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Getting Your Credit Report

An amendment to the FCRA requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.

How to Order Your Free Report

The three nationwide consumer reporting companies have set up one website, toll-free telephone number, and mailing address through which you can order your free annual report. To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order from only one or two. The law allows you to order one free copy from each of the nationwide consumer reporting companies every 12 months.

You need to provide your name, address, Social Security number, and date of birth. If you have moved in the last two years, you may have to provide your previous address. To maintain the security of your file, each nationwide consumer reporting company may ask you for some information that only you would know, like the amount of your monthly mortgage payment. Each company may ask you for different information because the information each has in your file may come from different sources.

Other situations where you might be eligible for a free report

Under federal law, you’re also entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, based on information in your report. You must ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company.

You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.

Otherwise, a consumer reporting company may charge you up to $10.50 for another copy of your report within a 12-month period.

There are also a number of different websites that sell copies of credit report. Some of these are good sources, but keep in mind that the scores and information may not be completely accurate. In my experience it is best to get your report straight from the source.

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Military Families and Veterans are you Aware of the History of the FICO Score?

Wednesday, April 28th, 2010

The history of the fico score goes clear back to 1956. It was first founded by the Fair Isaac Company, who tried to come up with a better way for businesses t o make decisions. The FICO score has come a long way since then. In today’s world, if you don’t have a high FICO score then it can be a challenge to get a house loan, a car loan, a good credit card rate, insurance, and it can even effect whether you get hired at a job or not.

How they calculated the FICO score, up until about the year 2000, was a “big secret.” The Fair Isaac Company wouldn’t share with anyone the formula they used to determine the FICO score. It wasn’t until people seriously protested this secrecy that they finally shared some of the guidelines they use to produce the FICO score. It soon became a law that people should have admission to know what their scores are.

Now days, a good FICO score is an essential thing to have to prevent you from your credit being denied or to keep your interest rates from rising. A very high percentage—higher than 65% —of lenders (such as banks and credit card companies) relies on the FICO score to help them make decisions. It gives them a sound way of telling if someone has the ability to pay back the money being lent to them. It assists them in know the risks that are involved if they led to a certain person. Not only do lenders use the FICO score, but also insurance companies, employers, landlords, phone companies, and even the government.

Before the FICO score existed (before 1980), people in business would have to rely on instinct or prejudice to help them determine who to lend to. The FICO score helped take out discriminatory practices that people used. Sometimes—especially when it was first used—there were those who claimed it still had its flaws that involved age, gender, race, or zip code discrimination. It has improved a ton since then, especially since it was required by law for people to see how their score was made up.

Things that can affect your credit score, as people came to find out, is the length of credit history, new credit, payment history, amounts that are owed, and even the types of credit. The score is a statistical analysis of the credit reports of a person that come from credit bureaus (such as Experian, Equifax, and TransUnion), and is expressed in a numerical expression (a three digit number).

The Credit Score is not based on the income someone makes, but rather their ability to pay their bills on time (along with many other such factors). There are many different ways to obtain your own credit score. A score ranges from 300-850.

The history of the FICO score has come a long ways since it was first used. It has become a more reliable way for lenders, employers, and other companies to assist with helping them in decisions. Where it used to be a big secret on how the FICO score was calculated, it is now available for anyone to see and know how their score is designed. Having a high FICO score is extremely important to qualify for almost anything now days.

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How Military Families can Improve Their Credit Scores for Better VA Loan Rates

Tuesday, April 20th, 2010

There is good news for those veterans who have bad/low credit scores, and that is that it can be improved! You can take a number of steps to improve your credit score, thus setting a more reliable foundation for future decisions and plans. Especially when it comes to getting approved for a VA loan.

First of all, make sure you aren’t late on any payments. Specifically your mortgage payment or rent, because if you are, it will surely affect your credit score. Be sure to pay off all liens, judgments, and collections that you may owe.

Another thing that will help immensely is to pay down credit card debt along with any other debt you may have. By closing one or two credit cards, it gives you less probable debt open to you. If you are trying to buy a house or get a VA loan, steer clear from closing or opening accounts needlessly. (Opening one could affect your score negatively at first due to taking out more credit….As for closing one, you are ridding yourself from getting the credit from that account, so that could possibly be bad as well for someone who is trying to improve their credit right off.) On the other hand, opening an account for other reasons, such as building your credit history, can be very helpful. In fact, it’s the KEY to building your credit. (Especially helpful after bankruptcy.)

One more strategy to improving your credit score is to confront the credit reporting agencies in writing to make sure everything is resolved that may be mistaken/flawed. You can also send them your bankruptcy discharge papers to be sure they don’t have inaccurate reports (which are not uncommon for them to make mistakes). This will speed the process as they update your report.

If you have a low credit history, it is a good idea to start building it for at least a year before trying to do a VA loan. Learn how to use a credit card wisely. You shouldn’t go over 50% of the offered limit and pay off the balance each month.

As you can see, there are a number of ways to improve your credit history. Whether it’s paying off credit cards, learning how to use one better, getting yourself out of debt, opening an account to build credit, or paying your bills and mortgage on time, each plays an important factor to getting and keeping good credit. It’s a habit-forming process that takes a lifetime of upkeep!

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Leave no Man Behind

Monday, April 12th, 2010

These immortal words have become part of the American lexicon. Though the phrase has become synonymous with the US Armed forces, there is some debate as to the origin of its use. The film “Black Hawk Down” lays claim to these words as the motto of Delta Force, the legendary (and still officially unrecognized) special forces unit, a claim supported by Chuck Norris, starring as a Delta Force operative in the eponymous 80’s action flick. Despite this, a simple Google search of the phrase reveals that many contest this fact, including but not limited to Marine Reservists serving in Iraq, Army Rangers, and even armchair historians who claim that the earliest derivation of phrase was coined by none other than Alexander the Great. Whatever the source, the message seems to resonate most with those who have served in combat. With reverent stoicism, it is a pledge of allegiance to the fraternity of soldier hood. Their fears are less tied to notions of self preservation than how they cherish the lives of their friends, for some the last family they will ever know, and thus the truest reminder of home. They are not motivated by the protection the unit offers, as much as they are compelled by the nobility of their membership to it. Theirs is a nobility born amid chaos, when the trappings of their normal lives erode, and their consciousness distills into a clear purpose. They serve our country, they serve our values, but most of all, they serve one another.

These tough economic times have made the line between soldier and civilian blurry at best, particularly when one thinks of “leaving no man behind”. Don’t our veterans deserve better than this? What about the veteran borrower returning home after his second tour in Afghanistan, only to find that the home he bought in Detroit for 80k is now worth less than $15k and the manufacturing job he was counting on died with the rest of the city’s work infrastructure. As he falls behind on his payments, how can he not feel even just a bit slighted by the system?

The intent of this post is to offer a hand out to government loan borrowers wishing for assistance on their va loans. Though there are many options available, few are being utilized effectively. Even if you are only using this post as a means to expand and clarify your options please feel free to contact James at any time and I’d be happy to answer them.

I. COMMON ALTERNATIVE OPTIONS TO FORECLOSURE THAT WORK

“An ounce of prevention is worth a pound of care.” Benjamin Franklin

Before exploring any foreclosure option, I would recommend checking out the free credit repair for veterans. This is an internal division that provides basic credit management education, and assists borrowers with disputing and updating their reports to the greatest point of accuracy. It is said that 70% of all credit reports have errors on them and an astonishing 1 in 4 have errors on them serious enough to prevent someone from getting the credit they are rightfully entitled to.

II. COMMON ALTERNATIVE OPTIONS TO FORECLOSURE THAT WORK

If you wish to stay in your home but have fallen behind on your VA mortgage payments there may be a way to save you from foreclosure. Contrary to popular belief, most lenders don’t want to have to resort to a costly and time intensive foreclosure process, particularly in a housing market such as this one. The following alternatives have been recommended from the VA Borrower Delinquency Page

A. Repayment Plan – The borrower makes regular installment each month plus part of the missed installments.

B. Special Forbearance – The servicer agrees not to initiate foreclosure to allow time for borrowers to repay the missed installments. An example of when this would be likely is when a borrower is waiting for a tax refund.

C. Loan Modification - Provides the borrower a fresh start by adding the delinquency to the loan balance and establishing a new payment schedule.

D. Additional time to arrange a private sale – The servicer agrees to delay foreclosure to allow a sale to close if the loan will be paid off.

E. Short Sale – When the servicer agrees to allow a borrower to sell his/her home for a lesser amount than what is currently required to payoff the loan.

F. Deed-in-Lieu of Foreclosure – The borrower voluntarily agrees to deed the property to the servicer instead of going through a lengthy foreclosure process.

III. Non-VA SPECIFIC ALTERNATIVES TO FORECLOSURE

A. Service Members Civil Relief Act (SCRA SCRA may provide a lower interest rate for up to one year, and provide forbearance, or prevent foreclosure or eviction up to nine months from period of military service. In order to qualify for certain protections available under the Act, his or her obligation must have originated prior to the current period of active military service.

B. If VA is not able to help a veteran borrower retain his/her home (whether a VA-guaranteed loan or not), the HOPE NOW Alliance may be of assistance. HOPE NOW is a joint alliance consisting of servicers, counselors, and investors whose main goal is to assist distressed borrowers retain their homes and avoid foreclosure. They have expertise in financial counseling, as well as programs that take advantage of relief measures that VA cannot. HOPE Now provides outreach, counseling and assistance to homeowners who have the willingness and ability to keep their homes but are facing financial difficulty as a result of the crisis in the mortgage market. The HOPE NOW Alliance can be reached at (888) 995-HOPE (4673), or by visiting www.hopenow.com.

IV. DIRECT ASSISTANCE with non- VA Guaranteed Home Loan Veteran’s Affairs

A. For a veteran or service member who may have obtained a conventional or sub-prime loan, VA has a network of eight Regional Loan Centers and two special servicing centers that can offer advice and guidance. Borrowers may visit VA’s Loan Guaranty website at www.homeloans.va.gov or call toll free (877) 827-3702 to speak with a VA Loan Technician. However, unlike the case of a veteran or service member with a VA-guaranteed home loan, VA does not have the legal authority or standing to intervene on the borrower’s behalf. Therefore, it is imperative that a borrower contacts his/her servicer as quickly as possible.

B. VA Refinancing of a non-VA Guaranteed Home Loan

C. Veterans with conventional home loans now have new options for refinancing to a VA-guaranteed home loan. These new options are available as a result of the Veterans’ Benefits Improvement Act of 2008, which the President signed into law on October 10, 2008. Veterans who wish to refinance their subprime or conventional mortgage may now do so for up to 100 percent of the value of the property, which is up from the previous limit of 90 percent.

D. Additionally, Congress raised VA’s maximum loan amount for these types of refinancing loans to $729,750 depending on where the property is located (this limit is significantly higher in Guam, Alaska, and Hawaii). These changes will allow more qualified veterans to refinance through VA, allowing for savings on interest costs and avoiding foreclosure. A VA refinancing loan may help a veteran who is facing a big payment increase.

V. DIRECT ASSISTANCE on VA Guaranteed Home Loan Veteran’s Affairs

C. When a VA-guaranteed home loan becomes delinquent, VA provides supplemental servicing assistance to help cure the default. The servicer has the primary responsibility of servicing the loan to resolve the default. However, in cases where the servicer is unable to help the veteran borrower, Loan Guaranty has Loan Technicians in eight Regional Loan Centers and two special servicing centers who take an active role in interceding with the servicer to explore all options to avoid foreclosure. Veterans with VA-guaranteed home loans can call (877) 827-3702 to reach the nearest Loan Guaranty office where loan specialists are prepared to discuss potential ways to help save the loan.

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How Credit Cards Affect a Veterans Credit Score

Thursday, April 8th, 2010

Credit scores can affect your credit score in both positive and negative ways.  What follows are a few of the ways they can impact a veteran’s credit score which will impact your VA home loan interest rate.

Officially closing a credit card account will lower your credit score because it (1) might reduce the length of your credit history, which accounts for 15% of your credit score, and it (2) lowers the total amount of credit you have available, which will raise your debt to available credit ratio.

To illustrate this, assume that one person has two credit cards each with a $5,000 credit limit.  This person habitually carries a $2,500 balance on one credit card.  With two credit cards, this person’s debt to available credit ratio is $10,000/$2,500 [total credit available/total debt].  This means that this person only uses 25% of his overall available credit, which is good.  If he closes one credit card, his ratio is now $5,000/$2,500, which will lower his overall credit score since he is now using 50% of his available credit.


Does this mean that one could open new credit card accounts just to improve his debt to available credit ratio?  Yes, one can, if he or she doesn’t already have too many open credit card accounts.  Too many credit card accounts can also lower one’s credit score.

On the other hand, having an open credit card that you never use can also negatively affect your credit score since, if you don’t use it occasionally, the credit card issuer might stop reporting your activity altogether.   Therefore, use your credit cards occasionally in order to help your credit score.

There is another way that credit card use can negatively affect your credit score, even if you pay off your credit card balances every month.  Suppose that you use your credit card to purchase gas, groceries, and everything else each month, always spending around $1,500 each month, but when the bill arrives, you pay the balance in full.  One would think you would get bonus points for staying out of debt and paying off the balance in full each month, but not when you consider how you look on paper. What is your credit card issuer reporting to your credit report each month — the total amount you owe at the time of the report and that you pay on time, not the fact that you pay your balance in full each month.  Therefore, on paper, it looks like you carry a $1,500 balance on your credit card and never pay it off.   Therefore, a good idea would be to have 2 or 3 credit cards and rotate them, using one for a few months, then using another, so that your credit card company can report a zero balance every few months to the three credit reporting agencies.

Note that in the months immediately preceding applying for any type of loan, particularly a mortgage loan, it would be a good idea if you paid off your credit cards in full and didn’t use them for awhile, giving your credit card issuer at least one month to report a zero balance to the credit reporting agencies.  The amount of debt being reported on your credit report is a very large factor in determining your credit score and the interest rate you will be granted, which could result in paying tens of thousands of dollars in additional finance charges on a mortgage loan.

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Veterans can learn to improve their credit or FICO scores

Friday, March 19th, 2010

Boost your available credit and your chances of securing important loans by improving your credit score.

Credit scores aren’t fixed in stone. Because they’re calculated based on your current credit report, they change every time your credit report changes. While this change may be very slight, it can also be much more dramatic. Here are some things some financial advisers say to do to try to improve your score:

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1. Review your credit report and correct any errors you find. A shocking percentage of credit reports contain errors — one study concluded that as much as a quarter of reports list wrong information that hurt an veteran’s credit score. Getting rid of these negative mistakes can improve a score dramatically.

2. Keep old credit accounts, even if you’re not using them. Creditors look at the debt-to-credit limit ratio and the average age of your accounts.

3. Reduce your balances on credit cards to 75 percent or less of your available credit (25 percent is preferable).

4. Pay your bills on time. Assuming that there are no big errors on your report, punctual payments are the most effective way to improve your score. If you look back to the page on credit score breakdown, you’ll see that payment history is the most weighty of all elements of your score. This has to do with whether you pay debts back on time and in full. This may take time to raise your score dramatically, but you’ll see slow and steady improvement.

5. Don’t let anyone make an inquiry on your credit report unless you absolutely have to. In general, the more inquiries, the lower your score. However, if you are shopping for a loan, make sure multiple inquiries occur within a few weeks, so that they can count as one inquiry on your score.

6. If you are planning on applying for a big loan, such as a mortgage, don’t open new credit card accounts just to increase your available credit in the hopes of raising your score. Opening new accounts will at first have a negative impact. In the long term, however, having more credit available can boost your score.

 Bye-Bye Piggy-backing

It used to help someone’s score to be an authorized user on another’s healthy credit account. However, some organizations now use the FICO ‘08 formula, which doesn’t reward this.

If you go to the bank for a VA loan and are turned down because your score is too low, your would-be lender will get a list of reasons for that low score. You can use that list to try to turn your score around. Since lenders can also use their own scoring methods, nothing is guaranteed, but you certainly can’t hurt your score by taking any of these steps.

Read your credit reports – every word. Errors do happen and when you’re dealing with billions of pieces of data a month, they can happen a lot. Do you count your change when you check out at the supermarket or a restaurant? Your credit report is no small change. Dispute the errors, outdated information, and negative stuff that belongs to someone else’s report.

Also check for signs of identity theft and take immediate action if you discover evidence that someone else is using your good name.

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Loan Officer Explains the VA Streamline Refinance with a VA Loan Video

Wednesday, March 17th, 2010

Here is the outline of the slide video presentation:

VA Fixed Rate Streamline Program Overview

This presentation will help families to better understand how VA streamline refinances work and the benefits they can expect by taking advantage of this program.

  • VA Interest Rate Reduction Loan (Streamline) Overview
  • Purpose
  • History
    • In 1980 the VA designed this program as a way of improving you current loan
    • Paying off old loan and replace it with a new loan that has a better interest rate and better terms
    • Civilians have been doing this for years
  • You don’t have to . . .
    • No full appraisal
    • No full credit report
    • No income verification
    • No asset verification
    • No employment verification
    • No inspections
  • VA Fixed Rate Loan
    • Very popular VA Loans
    • Number 1 most popular goal of the majority of families I speak with= lower monthly payment as much as possible
    • Lowest Interest Rate
    • Drop our sample veteran from 6.25% to as low as 4.5%
  • Fixed rate for the life of the loan
    • Interest rate will never change. Safe Stable and secure
    • The VA offers 30 year, 25 year, 20 year and 15 year terms
  • Sample Veteran
  • History of the 30 Year Fixed
  • Government Has Been Buying Rates Down
    • This Program Almost Over
  • Additional Cash Benefits
    • Miss two payments
    • Refund of escrow refund
  • At this point I get a lot of questions . . .
    • Is this legitimate?
    • What’s the catch?
    • Is this too good to be true?
    • You can verify at: www.homeloans.va.gov
  • 3 Reasons Your Loan Might Go Up
    • Two missed payments
    • Escrow refund check
    • Closing costs
  • 4 Good Things About Closing Costs
    • No cash out of pocket. The VA allows them to be rolled into new loan
    • 100% tax deductible
    • They are optional: The VA allows you to take a higher interest rate to pay for the closing costs
  • The VA performs a test to ensure this loan will save you more interest than what it costs
  • Rates change every day
  • What Happens Next?
    We need to explore your actual numbers

    • Please give me a call 801-341-7028
    • Or email me at ryan@yourvapro.com
    • Email you a VA Loan Application
    • You complete the paperwork and fax it back along with mortgage statement, homeowners insurance statement, mortgage note, copies of drivers license and social security number verification (takes most families about 20 minutes)
    • When we receive paperwork your VA Processors prepare your file for closing
    • After the underwriters review and give us the clear to close we will have an authorized representative come to your home within the next four weeks to help you to endorse the final closing paperwork and finalize the new loan
  • Please let me know how I can help

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Military Veterans need to know how their credit scores affect them

Monday, March 8th, 2010

 

If you aren’t careful about your credit, you could end up paying dearly for a low credit score. Not only can a low score stand in the way of getting a loan for your dream home or dream car, but even if you do get the loan, a less-than-stellar score will make it expensive. As your credit score decreases, you become more of a credit risk in the eyes of lenders. This means they’ll attach a higher interest rate to your loan, and your monthly payments will jump. On the other hand, a high score will lower that interest rate.

Although the score has a big impact, keep in mind that there are other factors that influence the interest rate you get for a loan besides your credit score. These might include things like the type of property you are using the loan to buy, how much of your own money or equity is going into it, the costs the lender pays to make the loan and so on.

In addition to banks and lenders, there are landlords, merchants, employers and insurance companies jumping on the credit score bandwagon. Of all of these, the fact that insurance rates are being determined by credit scores is causing consumers the most alarm. To most, it seems that your credit history and your driving record have little in common. Insurers, on the other hand, have found that credit scores help them predict how likely someone is to file claims. The rule of thumb is the lower the score, the higher the likelihood of filing claims. ­They don’t use the same score that banks and lenders use, however. They use a slightly different formula for their calculations and actually call it an insurance score.

Insurers’ use of credit histories to determine rates is under scrutiny nationwide. Many states are passing laws restricting this practice. In a few states, insurance companies can’t make decisions based solely on credit. In some others, if an insurance company makes a decision that negatively affects your policy based on your credit, it must disclose to you the reasons behind the decision [source: CreditInfoCenter].

Another practice that particularly upsets consumers has to do with credit card companies’ policy of universal default. Although we’ve already learned how a credit score can determine your interest rate, in the case of credit cards, your interest rate can change at the drop of a hat — or rather, at a drop in your score. Even if you always pay your credit card bill on time, if you default on a completely separate loan, your interest on your credit card debt could rise dramatically.

Prospective lenders aren’t the only ones who judge you based on your credit report and credit score. Potential employers check out your credit report too. Why is that you ask? After all, they’re in position to pay you, not the other way around. But businesses reason that the way you handle your finances is a reflection of your behavior in other areas of your life. If you’re late paying bills, you may be late to work. If you default on your car loan, you may not follow through with an important assignment.

Even if your credit woes can be explained, bad credit is a distraction from the employer’s perspective, and it detracts from worker productivity. Recent research shows that employees with credit problems are significantly less productive on the job than those without. So, the easy way out for the employer is to not bother to find out what’s going on, but to hire someone with good credit instead.

Increasingly, credit checks are a standard part of hiring and even promotion process at companies large and small throughout the United States.

All this adds up to say that credit scores are enormously important. So putting a little thought into improving your score could prove a good investment.

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