Should You Be Afraid of the Big Bad Credit Score Rating?

January 30, 2013

Credit Score

Bad Credit Score Rating

Bad Credit Score Rating

It’s no secret that a credit score rating has a big impact on our lives. They are the indicator of our financial health, and consequently dictate whether or not we can borrow money and what interest rates we have to pay if we do. There are certain other areas of our lives that a credit score also affects. In fact, many people live in fear of their credit scores, simply because they do not understand it. But knowledge is power, and understanding exactly what your credit score is, and knowing that you can control it, goes a long way to alleviating the fear of your credit score rating.

What is a Credit Score Rating

Your credit score rating, also known as a FICO score, is basically a number that summarises your financial credibility. When you apply for a loan or credit card, the lender will check your score to see if you are considered a high or low risk borrower.  A low number designates you as a high risk, a high number the opposite. But your credit score also impacts other areas of your life. It is consulted by employers who may be interested in hiring you, or an insurance company considering you as a client.

Whenever you apply for some type of insurance policy your credit score rating is used to determine if you are a risk or not. But that is only the initial use. Insurance companies use your credit score to further determine if they should extend your coverage. They factor your credit score rating in with other factors such as your lifestyle, employment, location, age and other factors to calculate an insurance score to determine what level of premiums you will pay. A low credit score will inevitably result in a low insurance score, and consequently you’ll be forced to pay higher premiums.

Employers use the credit score rating in making decisions about hiring or promotion. This is especially true of positions in the financial industry, or those jobs involving serious financial responsibility. Keep in mind though that employers must first get permission from an individual before requesting their credit score rating. Once they access your report, they must inform you in writing that they have done so. If you are denied employment directly because of something in your credit report, you are entitled to obtain a free copy of it within 60 days in order to give you the opportunity to dispute it and/or correct any mistakes it might contain.

Why You Don’t Have to Be Afraid of Your Credit Score Rating

You are basically in control of whatever is recorded in your credit history. The financial decisions you make are very much responsible for the value of your credit score rating. Certain behaviors will impact it negatively, others in a positive manner. The score is based on a simple formula, and you can supply the numbers. Keep in mind the following so that you have no need to fear your credit score rating:

  1. Thirty Five percent of your credit score is composed of your payment history. If you pay your bills on time you’ll already control more than one third of the data.
  2. Another 30% of your score is dependent on the amount you owe in relation to your credit limits. If you constantly max out your credit cards, your credit score rating will suffer. Even if you pay the balance off every month, maxing your cards out will result in negative scores.
  3. Another fifteen percent of your credit score rating depends on the length of your history. Keep old accounts alive, and use them occasionally for small amounts. Contrary to popular belief, closing accounts actually decreases your FICO score.
  4. New credit contributes to ten percent of your score. Applying for too many accounts will impact your credit score negatively, as it will indicate that you are too dependent on credit and perhaps using more than you can afford.

Though your credit score rating plays a large role in your life, it is nothing to fear. You have control, and by using credit wisely, you can earn yourself a solid credit score and save yourself money in the meantime.

Ethel Wilson has been advising clients on how to improve their credit score ratings for over 12 years. With an extensive background in the banking, credit scores and financial industry, she now shares the best of her credit score information as a contributor and editor of

Should You Be Afraid of the Big Bad Credit Score Rating?


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