What's My Credit Score Worth to Me?

By George Stargell, Senior Editor   

Your credit score is like your grade-point-average: It provides a pretty good indication of how your entire body of work compares to others, but it's not something you can sell on its own.

Much like a high GPA can get you an appointment with an Ivy League school's admissions director, a good credit score (i.e., one based on a credit report detailing a strong credit history) can help you sell yourself to credit issuers, but there's no market for credit scores or credit ratings per se.

There's a huge market for lines of credit, though, and that's where your credit score makes all the difference in the world.

Your credit score determines your purchase power.

A good credit score (these days, above 680) can qualify you for lower interest rates on mortgages, car loans, credit cards, and other lines of credit.

On the other hand, a low credit score (resulting from a bad credit history) can, for instance, expose you to credit card interest rates that look like the inflation rates of a teetering third-world economy — 20% or higher.

Even with mortgages, where interest rates are lower, the difference between what someone with a good credit report/score and someone with a bad credit report/score will pay over the lifetime of the mortgage can run into the tens of thousands of dollars.

Consider, for example, a 30-year, $250,000 mortgage at two different interest rates:

As you can see, just a 1% drop in the interest rate can amount to significant savings, both short-term and long-term. Over 30 years, that extra $57,826 could be used to:

• put a child through college;
• enhance your property value through home improvements;
• increase your IRA contributions; or
• help cover the costs of a large, unexpected medical need.

It can't be understated: Your credit score plays an incredibly important role in your lifetime finances. The higher your credit score is, the greater your purchasing power is.