It is no secret that having a credit score that is ranked low will create higher interest rates from lenders because you are considered a credit risk. Most people have only a vague understanding of this and are surprised by the often devastating effects this can cause.

For instance, a $200,000 home that is on a 30 year fixed mortgage at 8% interest instead of 6% interest will have a dramatic effect. The 2% higher interest rate due to low credit scores will cost you a total of $96,934.11 over the term of the loan! Consider how many years of work that equates to in paying just that 2% difference.

There are other places in life that a low credit score will actually increase your cost of living on a yearly basis. Not only will you be paying more for your home loan, car loan and credit cards a low credit score often cause you to pay extra in the following areas:

1) AUTO INSURANCE. The vast majority of the 100 largest personal auto insurers use a person's credit information to underwrite a new client. This snippet is based on a 2001 study that was conducted by Conning & Co; an insurance research and asset management company.

2) HOMEONWNERS INSURANCE. Many insurance companies relate a low credit score to a greater risk of property insurance claims. This often results in a low credit score earning a higher homeowners insurance rate.

3) LIFE and HEALTH INSURANCE. Increased costs are passed onto the insurance company when customers are unable to pay their insurance premiums. The means the insurance company takes a loss when they are left with unpaid medical bills. This to relates to low credit scores as they are the consumers who are more likely to lapse in their premiums; hence the cost of insurance for credit risks are higher.

All of the above mentioned places are often expected areas effected by a low credit score; however, a more shocking and unexpected place effected by a low credit score is in employment. Currently it is estimated that over 40% of employers perform credit checks on their applicants before hiring them. This is based on a 1998 survey conducted by the Society for Human Resource Management.

Certainly, employers often report that they do credit checks simply to verify the information on the application is correct, such as addresses and previous employment. It can more than likely be safely assumed that they are also taking the liberty to see how you have conducted your finances. This is unfortunate since as many as 79% of all credit reports contain errors, according to the Public Research Interest Group, also known as PIRG. Of these 79% of errors, 25% are thought to be serious enough to cause the denial of credit to be extended.

According to Ed Mierzwinski, the director of PIRG's consumer program; "it's outrageous that the credit bureaus are claiming their scores are accurate enough to take people's lives and screw with them like this". This casts a shadow over the consumer credit report as the consumer begins to realize the full impact of a bad credit report.