It can cost you anytime you apply for a mortgage, rent an apartment, buy homeowners insurance or even interview for a new job.
It's your credit score, yet most people don't understand what it measures or how it works, according to a recent survey by the Consumer Federation of America of Washington, D.C., a nonprofit association of some 300 consumer groups.
Only about one-third of consumers correctly understand what a credit score does, the survey found.
It is a predictor of your credit behavior, spun from a complex computer model and based on your credit history. That history is stored and constantly updated by the nation's top three credit reporting agencies: Equifax (EFX), TransUnion and Experian, a subsidiary of the U.K.'s Gus Plc (GUSSF).
The best-known credit score is the FICO from industry pioneer Fair Isaac (FIC). FICO scores range from the poorest rating of 500 to a top of 850, with 723 as the nation's current median score, according to the company.
The higher the score, the more credit is available to you at lower interest rates. A borrower seeking a $300,000 mortgage with a score below 559 would pay about 9.234% interest on a 30-year fixed mortgage, or $2,465 a month, according to Fair Isaac, while the same loan would cost a borrower with a FICO above 720 just 5.515% interest, or $1,706 per month.
"Ignorance about your credit score can cost you," says Liz Pulliam Weston, author of the new book Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future and syndicated newspaper columnist. Usually people with bad or mediocre credit "get all the loans they want," she says, "but they don't realize the high price they're paying."