Due to the recession and interrelated credit crunch, banks everywhere are tightening their lending rules, making it extremely difficult for most consumers to secure loans and additional credit. Now, more than ever, it’s important for you to understand how and why your credit score affects you.
Lenders use your credit score to assess your ability to repay a mortgage or auto loan. If your credit score indicates a record of poor financial management — late payments, exceeding your credit limit, overdrafts, etc., you could end up renting a room in a boarding house and driving that hoopty for the next 10 years.
Following are three reasons to free yourself of excessive debt and improve your credit score.
1. Loans. As mentioned, if you have poor credit (a credit score that ranges from 600-649, based on FICO calculations), then you may be unable to secure a loan for a car, house or a signature loan. In contrast to someone who has maintained or kept his or her credit score above 700, you might have to make a larger down payment toward your purchase in order to secure the loan. Furthermore, if you’re granted the loan, you may be penalized with a high interest rate.
2. Credit Cards. If you have poor credit, it’s also difficult to get credit cards, which are nearly required when making major purchases, renting cars and reserving hotel rooms. Even if you should later be given a credit card, it will likely have a low credit limit, high interest rate and membership fees.
3. Penalties. Credit card companies are lowering limits on consumers without notice because they don’t want to extend as much credit and risk consumers being unable to pay off their balances. If you have good credit, you have the leverage to threaten to take your business elsewhere because good customers are in demand.
Start on the road to financial recovery by obtaining both your credit scores and reports. There are two credit-scoring systems — the FICO (Fair Isaac Corporation) model and the VantageScore, which was developed in 2006 to help banks and lenders determine credit for subprime borrowers. You can obtain a free estimate of your credit score by visiting credit.com and creditkarma.com.
Additionally, review your comprehensive package of credit reports from Experian, TransUnion and Equifax by visiting annualcreditreport.com, the official site to help consumers obtain free credit reports.–yvette caslin
FICO Score Scale
Excellent Credit (750+)
Good Credit (700-749)
Fair Credit (650-699)
Poor Credit (600-649)
Bad Credit (Below 599)
VantageScore Scale
901-990 equals “A” credit
801-900 equals “B” credit
701-800 equals “C” credit
601-700 equals “D” credit
501-600 equals “F” credit
