How a 680 credit score went from an asset to a liability

Your credit score hasn't changed, but its value has. While a number like 680 may have earned approval for a mortgage, car loan or credit card with a great rate just a few short years ago, now more Americans are finding they need scores of 720 or even higher to get those same deals. If you're thinking about borrowing long-term -- say, for a five-year car loan or a 30-year mortgage -- this new reality could mean paying hundreds or even thousands of dollars more in interest over the life of the loan.

What's going on? Blame today's credit crunch, the terrible economy and the waves of defaults banks have been shouldering for the past couple of years. "I think the recent crisis our country is facing with regard to people defaulting on loans and credit cards has been a main driver for that," said Megan Bridgett, a training manager at the credit counseling organization GreenPath Debt Solutions in Detroit. "Creditors are seeking less risky investments. They're going to want to mitigate the risks of lending money, which might be why we're seeing the increased standards"

SmartMoney points out that juicy teasers like 0% auto financing or a jumbo mortgage are generally no longer available to people with scores in the 680 range. Compare this to the boom years of 2003 and 2004, when, Bridgett says, even people with credit scores in the low- or mid-600s qualified for financing at optimal rates.

In some cases, even 720 might not be good enough to get you the best rates. When my family financed a new vehicle earlier this year, we were told by at least one lending institution we'd need scores of 750 or higher to qualify for their low, teaser rate. Yikes! While we can't blame the banks for regaining some of their sanity and not dishing out loans to people whether they can afford to pay them back or not, it's a tough reality check for Americans who may be finding it tougher than ever to stay financially solvent these days.

GreenPath's Bridgett offers some advice for would-be borrowers who are stunned to learn that their formerly "good" score now makes them second-class debtors. Wait a few months and try to bring your credit score up to the next bracket before shopping for a loan. If you're unsure of your credit score, or if you know it's in that good-but-not-great range, start cleaning up your credit well before you looking for a loan.

Check back next week when we tackle how to boost your all-important credit score number

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