Understanding Credit and Credit Scores
Understanding Credit and Credit Scores
Bad credit creates many difficulties to get a mortgage, credit card, student loan or car loan. When you have a bad credit record, it creates an impression on the mind of creditors that you are not paying your financial obligation on time and they label you as a high risk borrower.
Bad credit is simply the result of poor or wrong financial choices. Basically, it is the result of delayed payments in any type of loan like a car loan, housing loan or student loan. Most often, these delayed payments are caused by the mishandling of finances. But even those who are good in handling their finances can incur debt because of loss of job.
Whatever is the cause of your bad credit record, the important thing is the realization of the many negative effects that it creates on your credibility when you want to get future loans. It is only after this bad situation that consumers learn to make better decisions.
Credit Scores are numbers. They are calculated based on how well the consumers are paying their financial obligations. Consumers get high scores by paying their loans on time. Conversely, the scores go down when payments are delayed or default. All your payments whether on time or delayed are regularly reported to the three big national credit bureaus for the calculation of your credit scores. The three big credit bureaus are TransUnion: Precision, Experian:FICO (Fair Isaac Corporation) and Equifax: Pinnacle.
The most commonly used credit score reference is FICO. In this model the score ranges from 300 to 850. The worst score is 300 and the best score is 850.
Only a very few have excellent credit scores and these belong to a few elite who qualify easily to get loans with the best interest rates.
A score of 600 is still considered as low APR. A score of 500 puts a consumer in trouble and may require higher interest rate for a loan. Creditors or lenders will always do investigation especially on your credit scores before granting loans. Therefore, consumers should handle their finances properly to protect their credit scores. This is how important credit scores are.
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Filed under: bad credit • Credit • credit cards • Credit Score • Loans • loans for people with bad credit • mortgage • mortgage loans • Personal Finance • personal loans • Student Loans
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