You hear a lot about credit scores and credit history. It seems like you can’t watch TV or listen to the radio without hearing credit scores mentioned. But do you know why your credit score is so important? Believe it or not, your credit score is probably more important than you realize.

Your credit score plays an important role in:

Borrowing Money: If you do not have any credit history, or if you have a poor credit score, you may not be able to borrow money in any form.

Interest Rates: The interest rates lenders charge is based on several factors; primarily your credit score, credit history, income, and debt to income ration (the amount of your monthly debt payments compared to your monthly income).

You credit score and credit history have a direct relation to the interest rates you will be charged by a lender, if they even offer to extend credit to you in the first place. A good credit score can result in lower interest rates which can save you thousands of dollars over the course of a loan.

Insurance Rates: Almost every insurance company runs a credit check when determining your insurance rates. The higher your credit score and the longer your credit history, the lower your rates will be. This applies to auto insurance as well as homeowner’s or renter’s insurance.

Employment: Many employers will perform background checks when making a hiring decision, many of which include a credit check. If your job deals with financial matters, sensitive information, or requires a security clearance , your credit score and credit history can have a direct impact on your ability to get hired.

Renting: If you rent a home or apartment, chances are your landlord did a background check and credit screening on you. If you have a bad credit score, or no credit history, you may have a hard time finding a landlord who will rent an apartment or a house to you.

Cell Phones: Yes, even cell phone companies do credit checks before they will sell you a cell phone plan. Cell phones require a monthly payment, and the cell phone providers want to know if it is worth entering into a contract with you. If you have a poor credit score, or no history, you may not be able to get a cell phone contract.

In our society, having a credit score and an established credit history is a necessity. If you do not have credit history, you are placing yourself at a financial and possibly professional disadvantage. Now is the best time to begin growing your credit history. The easiest way to do this is to take out a small loan and make regular payments. There is no need to borrow a lot of money to create credit history. Simply borrow an amount that is easy to pay back and make regular payments. Your credit score will increase in a few months time.

—

Patrick is the author of Cash Money Life, a blog about personal finance, career management, and self-improvement. He served in the United States Air Force, has traveled to over 35 countries, and is a fantasy baseball champion. He is an active lender at Prosper.

Harlan Howard, one of the most prolific songwriters in Nashville’s history, once said that country music is ‘Three Chords and the Truth’. The same phrase was popularized by U2 who performed it in their version of Bob Dylan’s, All Along the Watchtower. The line goes: “All I got is a red guitar, three chords and the truth.” This statement seems to sum up U2’s nature perfectly - and that of a lot of other bands as well.  Music is about more than slick production, a pretty face, and some publicity. If you throw enough money into advertising and good press, just about anything will sell. Music is about raw power, energy, excitement, and truth - not money. In fact, some of Rock’s most important albums were recorded on a shoestring budget.

Back in 1975, Tom Scholz began recording music in his basement studio. The result of those basement recordings became the foundation of one of the greatest classic rock albums of all time, Boston’s self titled debut album. The recordings were good enough that Epic studios signed the Scholz and his band mates to a record deal - and they insisted they re-record everything in a proper studio. Of course, Scholz would have none of that. He sent his band mates to the studios in LA to lay a few tracks, and he recorded everything else in his Boston area basement. The result was a low budget record that was both a commercial and critical success. The album has gone on to sell over 17 million copies in the US alone.

In December 1988 and January 1989, Nirvana held several recording sessions at Reciprocal Recording Studios in Seattle, WA. The result was their first full album, Bleach. This record was not a critical or commercial upon its release. In fact, it was not until after Kurt Cobain’s death in 1994 that it hit the top of the charts. However, the album was important to Nirvana’s growth as a band. Bleach gave Nirvana a full length album to tour behind. Their subsequent tours laid the foundation for the album Nevermind, which changed the face of Rock. Today, Bleach remains an important piece of Nirvana’s discography. The total cost of the recording sessions: $606.17… of borrowed money.

One of Rock’s highest selling debut albums of the 90’s was recorded in a home studio. Creed’s My Own Prison was recorded and produced in a friend’s Florida home studio for the cost of $6,000. The album received some local radio play before they band was signed to the major record label Wind-Up Records. My Own Prison went on to sell 6 million copies, and launched Creed into superstar status.

These three albums all share several common threads. They were the debut album for groups who had passion and talent, but not a lot of money. But they had talent and a dream. They begged, borrowed, and pooled their resources to follow their dream, and change their lives, and the face of Rock & Roll forever.

—

Patrick is the author of Cash Money Life, a blog about personal finance, career management, and self-improvement. He served in the United States Air Force, has traveled to over 35 countries, and is a fantasy baseball champion. He is an active lender at Prosper.

Here is Chris Larsen’s recent Q&A from a Wall Street Journal Interview (Q&A: ‘Bringing Together George Bailey and Gordon Gekko’)

The Wall Street Journal: How would you describe your business?

Chris Larsen: An eBay for money and credit. Borrowers can make listings and any American with $50 or more are free to bid. It’s combining community banking with the high finance of Wall Street — bringing together George Bailey with a little Gordon Gekko.

WSJ: Why do people turn to sites such as Prosper to borrow or make a loan?

Mr. Larsen: On the borrower side, particularly with the credit crunch, even super-prime and prime customers are being shut out from sources like home-equity loans. Even credit cards have higher fees. Borrowers can get a better deal — a fixed, lower rate — and simpler terms on Prosper. For lenders, it’s a new asset class that’s non-correlated with other investments and a lender can make 7.5% to 11% using some of the portfolio plans. Another reason for the lenders is the social participation — that sense that I’m helping somebody like me — that I’m doing well by doing good.

WSJ: How do borrowers and lenders find each other?

Mr. Larsen: Prosper is a totally open marketplace so you can bring your friends in to bid on your listing. We make it easy for you to invite friends and family. Beyond that, it’s open to people who don’t know you. For lenders, there’s a ton of tools for searching manually for listings, based on borrowers’ credit data or social capital — such as how many friends have bid on their loans or what groups they belong to — basically any variable both financial and social that you can think of.

WSJ: What do borrowers say is the most popular reason for getting a loan? What about lenders?

Mr. Larsen: The most popular reason for borrowers is to replace high-cost credit sources — credit cards or bank loans or personal loans — with a lower-cost loan. The second has been starting a small business or supporting your existing business. By far, the most important reason for lenders is to make a good return — to make a superior return than other asset classes for the risk. Secondary to that, embedded in there, lenders do want to feel like they’re participating and affecting society in a positive way and helping deserving people. There’s economic advantages to both sides — and something that’s socially satisfying as well.

WSJ: How does Prosper make money?

Mr. Larsen: We are a transaction model, much like eBay. You can list for free as a borrower and once you get a loan, a borrower will pay a one-time fee between 1% to 3% of the loan amount. The lender will pay 0% to 1% every month, depending on the credit grade.

WSJ: What steps has Prosper taken to address concerns about fraud or identity theft?

Mr. Larsen: We have a 100% fraud ID theft guarantee. If there’s a fraudulent borrower who gets through our screens, we’ll buy that loan back. Beyond that, we’re also very aggressively prosecuting people and we did have our first conviction.

WSJ: What role will social networking play in financial services?

Mr. Larsen: We’re all just now getting into the second wave of social networking — going from the entertainment wave into financial services. We’ve tried to provide tactics that capture that. For example, borrowers who belong to small groups tend to get better rates than borrowers who belong to large groups. One thing that works really well is friends bidding on borrowers’ loans — that can result in a 35% to 50% improvement in default rates on those loans. We’ve tried to both capture social relationships and social reputations in a way that allows borrowers to monetize their social capital.

And from around the rest of the Prosper and personal finance blogosphere…

RateLadder Prosper Vintage Curve Update 3/1/2008 

The Digerati Life says Don’t Get Scammed! Reduce The Risk of Identity Theft

Lazy Man asks Am I officially cheap?

Blogging Away Debt had A Weekend Present - Aurora Borealis

brip blap with 31 causes of failure #3: lack of ambition

GenX Finance rants Your Tax Dollars at Work: $42 Million Just to Mail Out Tax Rebate Reminder Letters

Melissa at QueerCents has her Six Month Review: The Big Girl World

Last but not least…  Patrick @ CashMoneyLife.com is a new Prosper Blogger.  His articles will be featured heavily next week.  Here he tackels Which Debt to Slay First? - Reader Question »

—

RateLadder is a Prosper lender and has been since July, 2006.  He has a passion for p2p lending.  He owns RateLadder — My Prosper.com Journey and other P2P Lending Adventures, P2P No Bank the P2P Blog Aggregate, and ProProsper — Professional Tools for Prosper Lenders featuring SQL access to Prosper data.

Do you hate debt?

Well so do I, but not enough to avoid it completely. But let me qualify — I only have a problem with it if it gets the better of me. Understandably, it’s hard to resist the cards, freebies and rewards that credit card companies dangle in front of us, but this is what makes it so easy to fall into a growing credit trap that takes many years to get out of. Nevertheless, the bottom line is that debt is still just a tool that we use at our disposal. In and of itself, it is not the financial evil that many purport it to be: the problem is actually in the way it typically ends up being utilized.

I’ve personally never had a problem with debt because I tend to be very conservative with it. I’ve only managed to owe money for very few items, although these were things that I felt I *really* needed to borrow for. My position on debt is to keep it at a safe distance, to regard it with care, and to reel it in only when I feel thoroughly confident and comfortable about being able to pay all of it back. The problems arise when we don’t think far enough ahead about the consequences of borrowing money and instead just dwell on the here and now. And that’s where the root of debt trouble lies — in HOW it is used (or in many cases, abused).

In defense of debt, I’d like to share some of my positive experiences with it.

The Good Side of Debt

• If it weren’t for my several hundred thousand dollar mortgage, I wouldn’t be able to afford a house in Silicon Valley, or a good school district for my children.
• My spouse is toiling away at a startup and to help us bootstrap our business ventures, we had to turn to loans.
• To finance some of my education and college lifestyle, I admit that I had to resort to a couple of small student loans. All paid off now though!
• I’ve taken some 0% financing offers to save me some money (or even earn me some, by buying my money some extra time in my savings accounts), which I’ve subsequently paid off in full before the offers expired. Granted, I don’t do this often since I’m lousy at keeping track of payment schedules of this sort.

So these are some of the reasons I can’t really hate debt all too much. With debt, you’re able to use “other people’s money” to further your causes. And the leverage from “OPM” (as they call it) can be a good thing if you know how to handle it. There are just some things you may be better off having now, rather than later — but you’ll need to weigh this need against your capability for taking on and managing debt. Polarizing as it is, debt has its benefits, but the fact is, until we can successfully wrestle it down and have it become our slave instead of the other way around, it’ll continue to be something to hate.

—The Silicon Valley Blogger (SVB for short) is behind the The Digerati Life, a blog that covers personal finance, business, investment and real estate topics along with the occasional Silicon Valley tech story sprinkled in. SVB is a married mother of two young kids who juggles a nine to five job in the IT industry along with raising a family and various entrepreneurial pursuits.

Last week, I had one of my good friends from Boston contact me. Let’s call him Jeff. Jeff had heard from his friend that his website as bringing him some significant business. This didn’t surprise me. You see, Jeff is a real estate lawyer. I don’t know how familiar you are with commercial real estate, but a single transaction can make a lot of money. A couple percent of many millions can feed a family for a long time.

Jeff wanted to duplicate his friend’s success and since they were different types of lawyers, he knew that he wouldn’t hurt his friend’s business. Still, Jeff had a problem… he didn’t know how to create a website. He figured that he could put some time and learn how to do it, but it would take a lot of time. In general, a lawyer’s time is very valuable. This is why Jeff contacted me. He knew that I could build a website very quickly.

Jeff and I talked and he explained what he needed. I took notes and made suggestions where appropriate. Towards the end of the conversation he said, “Who does your estate planning?” Unfortunately, this is one of the areas where I earn my Lazy Man name. I have nothing set up in the estate planning at all. When I mentioned this to Jeff, he said that he’d draw up the paperwork and the next time I’m in Boston, we can finalize it.

It took me a minute to understand what he was saying. In exchange for me doing the work on his website, I’d have an estate plan. I got really excited when I realized that that I was saving hundreds of dollars. I got so excited that Jeff had his website 90% completed about four hours later.

There are two limitations preventing me from greatly expanding my bartering enterprise. Some industries, I just can’t seems to barter with - Safeway already has a pretty good website. In other industries, I just lack the connections - I don’t have a friend who is a mechanic.

—

Lazy Man has been a lender at Prosper since February 2006. He is the author of the personal finance blog, Lazy Man and Money and the health and fitness blog, Lazy Man and Health.