How Credit Scores Change Lives

credit score

In those halcyon days of easy credit, consumer credit scores were often an afterthought. Even borrowers with low scores could qualify for loans to buy what they wanted, when they wanted.

Now, with the worst financial crisis since the Great Depression battering the economy, being persnickety about scores is back in vogue, both for consumers and lenders.

VIDEO: Improving Your Credit Score

"Credit scores are more important now than they have been pretty much ever," said Emily Peters, a personal finance expert with the credit education and information Web site "What we're seeing now is that credit scores are being used the way they were intended, which is assessing risk and not giving credit to people who are below a certain score."

With this in mind, talked to three consumers with similar incomes but distinctly different credit scores to learn how their scores are affecting their lives.'s Peters also provided advice on what each consumer could do differently to meet their financial goals. Read on, some of her advice might just apply to you.

The Low Score

Consumer: Denise

Score: 498

The situation: Denise, 48, a married human resources specialist living in Missouri, said that her credit score plummeted after an illness left her husband out of work and the couple was unable to pay their bills.

Today, Denise is in better shape. Her husband is back at work as a manager at an airline, the couple is earning about $75,000 a year annually and they're usually on time with their bill payments.

But they're not out of debt. Denise has $3,000 in outstanding debt on two closed credit accounts that she's paying down through a collections agency. She also owes a total of about $500 on two credit cards that each have a limit of $300.

Her challenges: Denise's low credit score prevented her from securing an affordable rate on an auto loan; she got help from her mother, who co-signed the loan. Denise also can't get financing for purchases ranging from a $500 television to new windows for her home.

"My hands are tied," she said. "I know I have to save, save, save, if I want anything."

Super-Low Credit Score? How to Cope

The advice: It looks like Denise will have to keep saving. Peters says that nearly a third of your credit score is dependent on how much you owe, compared to how much you have the capacity to borrow -- your debt utilization. If Denise can reduce her credit card debt to below 10 percent of her credit limits -- in this case, below $60 -- it could have a significant impact on her credit score.

But right now, Peters said, what's dragging Denise's score down the most are her two "active collections accounts" -- the two outstanding credit card balances now in the hands of a collections agency. The good news here, Peters said, is that collections records expire after seven years, whether Denise repays the debts or not. Once the records expire, Denise could see her score jump about 100 points.

Until then, Peters said, Denise needs to continue making timely payments on her bills, including her auto loan. Any late payments could immediately damage not just her credit but her mother's credit too.

Overall, consumers with credit scores below 650 are going to have the most trouble securing loans, Peters said. Before the financial crisis, they could still qualify for subprime or high-interest rate loans.

Today, she said, they're in the "the no-go zone entirely."

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