Poor Credit Affects Auto and Home Insurance

The majority of consumers know that their credit history is affected by their payments on homes or cars, but only a few understand that it actually affects their insurance policies. Most companies that offer auto and home insurance use credit score as a factor in deciding whether to give out or renew an insurance policy, and the cost of premiums.

In the perspective of insurance companies, there is a relationship between credit scores claims. That is, more claims are filed by drivers and homeowners with bad credit histories than those with good credit histories.

Especially under the Fair Credit Reporting Act, insurers must inform their customers when something in their credit report rejects them of insurance, affects their rates to go up, or alters their coverage one way or another.

According to Bob Hartwig, president of the Insurance Information Institute in New York, low credit scores having a correlation with higher losses are supported by facts and are undeniable. In fact, using consumer credit has made it possible for insurers to price the risk of policies in a more accurate way. Moreover, it has also enable insurers to correctly price policies for risky drivers.

However, consumer advocates disagree with using credit reports in pricing insurance policies. According to them, the practice is unfavorable to those with low incomes and is unjust to those whose credit score might low due to difficulties like sickness, unemployment or divorce.

In addition, consumer advocates approximate that roughly one third of consumers know that insurance companies use their credit reports. Birny Birnbaum, executive director for the Center for Economic Justice, said that insurers do not take actions to inform consumers that their credit reports are being used.

All of these concerns show the significance of accurate credit reports. While errors and problems with credit reports can affect many aspects consumers’ lives, the greatest impact is in insurance.

Less Debt More Uncollectable Accounts

The debt of Americans is continually decreasing these past few years. From an average of $16,383 two years ago, it has fallen to only $14,517 this year. This has nothing to do with financial discipline, and certainly this is not very good news for the industry.

The decrease in the rate in 2010 was due to the uncollectable amounts that were write-off by the companies, and this may be the case for 2012.

It has been nerve neither racking for consumers that the rate of debt is not going down nor showing signs at all. Credit rate has continued to stay stable in 2011 and has not made no signs of change ever since. The largest decline in credit occurred in 2010 but the two years that followed did not follow its trend.

The only hope for consumers is the fast recovering economy of the United States from the recession it suffered from in 2008, and the fact that more credit lending companies are more open to lend to customers even if they do not have a spotless credit history. Furthermore, the high employment rate continues to boost the confidence of lenders.

But this current trend in the lending business poses a threat in the future. The more the economy becomes progressive, the more these financial intermediaries will take on risky decisions. This will lead to the eventual rise in the debt rate again. It is an unavoidable cycle that once too much debt is made, and then the economy will surely fall again.

As all of you might now, the top three debts that American households endure are housing loan in first place, followed by student financial loans in second and credit card liabilities in third.

Debt occurred by student loans make out a total of $1 trillion. Though credit cards could be a very hard deal, student loans are imposing a very high threat in the economy. The US president Obama is trying to get legislators to sign a law to address this problem, and hopefully they succeed.

College Graduates in Danger of Not Getting Jobs Because of Student Debt

If you recently graduated from college, you more likely have a student debt of at least $25,000 and looking for a job. Those without a degree are instantly disqualified from the American job market. On the other hand, for those who have a degree, your hopes might be futile.

Ever since 2010, student loan debt has exceeded credit card loan debt and auto loan debt.

San Francisco State University students, who have federal student loans, have an average debt of $18,000. SFSU approximates its default rate to be over 5 percent for the next year. This default rate is lower than 8.8 percent which is the national average.

Failure in paying debts damages credit value, and job applicants with bankruptcy records are avoided by a few employers. Moreover, poor credit hinders a person to be able to get loans that can help put up a business or get loans for a car or house.

However, the sad truth is that federal student loans can be paid only after graduation and normally takes 20 years. This is why a few students stop pursuing their dreams because of the prospect that the unemployment rate for college graduates of this year will be 50 percent.

The country’s three richest people would have to give 4.5 percent of their respective incomes to maintain federal loan rates at their current point for all students. According to a recent study, 35 percent of the college expenses are paid by families. Thus, while higher education fees increase, household income decreases.

In addition, another problem is the country must have an education system that is appropriate with the economy and public welfare needs.

These issues must be solved as soon as possible because if not, the next generations of graduates will only end up overwhelmed with misery. There must be an improved educational system that is within the means of all income groups.

Credit Card Holders Reached The Highest Percentage Yet

A surprising twist has occurred in the credit card industry as more clients turn to credit card companies for loans. Customer borrowings surged up to $21.4 billion just as the month of March was about to end.

The percentage of credit card loaning and the amount of dollars loaned has reached its highest amount in March, breaking the November 2001 record. However there has also been a puzzling increase of $5.2 billion in the amount of revolving debt. This may be due to the downtrend of credit cards since the recession; the limited number of cards has also limited clients’ purchases.

Analysts still find it difficult to interpret the data that they have gathered about the sudden surge of credit card in March. Does the data indicate that customers are now more confident financially to get credit cards or are they in need of the cards to pay for their loans?

According to experts, in this stage, it is too early to tell what the customers are thinking. A little more time and credit data will be needed to truly understand the flow of the market today. In a few months, study will be able to answer if the Americans have truly recovered from the recession or are they still struggling through mortgages, unemployment and other unsettled accounts.

A recent research conducted by the Conference Board, the February and March data included an increase in the percentage of clients who are confident that their incomes will be increasing in the coming months. This is an indication that people are willing to borrow if they are expecting a larger amount of pay in the future.

On the other hand, an increase of 0.5% in the hourly pay has occurred in the last 3 months; also an 8.8% has hiked in the price of gasoline and a 0.9% inflation rate increase. To keep up with their lifestyle, some households have to borrow from credit companies.

But good news from the Energy Information Administration has burst out his week, gasoline prices will not exceed $5 a gallon, as analysts guessed. The price will be $3.70 per gallon in the summer.

Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition

All types of debt can be seen in a mortgage business. Debt payments for car loans, student loans and IRS payments, alimony, child support are made when you engage in a mortgage. Too much debt and having no debt can be both a big problem.

It sounds strange that having no debt can be a problem. It can be big problem because the lenders are looking at the borrower’s credit history before granting him mortgage. The lenders want to see the manner of your payment whether it is delayed or on time. If you have no debt then you can show no credit record to the lenders and more likely you will not be able to get a mortgage.

If you have never had a credit card or any payment for a loan then lenders have no way of checking your credit history and you just might end up keeping on renting instead of owning a property.

So what you should do is to apply for a credit card as soon as possible. You start with one credit card. It does not have to be an American Express Gold Card. It can be any card for a start that will allow you to purchase any item and to be charged to your account. Then pay on time when the bill comes. Do it consistently for several months and then apply for Visa or MasterCard later. When you have your Visa or MasterCard, do the same thing. Purchase small items and when your bill comes, pay your dues on time.

Do not apply for a bunch of credit cards at one time. Get a card one at a time in a couple of months and limit it to only three. Make sure that your payment is on time because one late payment can do damage to your credit score and it might be the reason for the disapproval of your application for mortgage in the future.

Having a debt has also its merits. It is not a problem at all times. Let me cite an example. Having a mortgage can provide you earnings. If you purchase a home at $350,000 and the home appreciates at a conservative rate of 2 percent per year then in one year the home is already worth $357,000 or in five years its value is $386,000. In addition to this you can reduce your federal tax liability. How does this work? If the home you purchased is worth $350,000 and you borrowed $315,000 at 4 percent interest, you can deduct $12,000 from your income which will result to a reduced federal tax liability. Debt can be a good investment. It can help you improve your financial situation.