The Cost of Poor Credit
Bad credit? No credit? No problem. You hear lenders saying it all the time but who’s really paying the price? You! Sub prime lenders charge higher interest rates, usually three percentage points above what prime borrowers with good credit pay plus thousands of dollars in fees. Ultimately this vicious cycle of accepting sub prime offers can result in catastrophic debt overload which then leads to bad marks on a credit report or even bankruptcy.
It is estimated that approximately 60 million Americans are negatively affected by derogatory information contained in their credit reports- that`s a staggering figure. The cost of poor credit goes much deeper than just trying to qualify for a small computer loan or secured credit card. Your credit reports reflect your character! Lenders, landlords, employers and even insurance companies view your credit worthiness by how well you manage and pay your debts.
Credit is a cost effective weapon to fight poverty and it serves as a vehicle in the overall well-being of the socioeconomic. Managing credit correctly can ensure financial well-being. Continual late payments, inaccuracies and errors reflect negatively on your character and limit your financial options. While we can see the importance of good credit, maybe you have not given much thought to how much your bad credit is costing you. You are being punished for your lacking credit record in almost everything you do. Your credit score determines your ability to borrow.
750 and Higher
|A||720 to 740|
|A-||680 to 699|
|B+||660 to 679|
|B||640 to 659|
|C+||620 to 639|
|C||600 to 619|
|D-F||599 and Below|
Consider this. Your credit reports decide just how much you will be charged in interest on any given loan, if you can even get a loan. Below, we have given you a few examples of the cost of your bad credit and how much the industry is charging you. Can you afford to continue on down this expensive road?
If you have bad credit history and are seeking a home mortgage loan, you are going to need to know all about how the FICO credit scoring system works. What is FICO? FICO® is a mathematical model created as a tool for lenders to use in evaluating the risk associated with lending you money. FICO® stands for Fair Isaac Company, the company that created the original scoring model. The formula used by Fair Isaac utilizes everything from numerous addresses, alias names, occupation, length of time you have had credit and other factors to come up with your score. People who have all good credit may score low because all of their credit is fairly new, based on Fair Isaac.
FICO – Fair ISAAC & Company – is the leading credit reporting agency that lenders turn to when it comes time to credit scoring your home loan mortgage application; so if you do have bad credit history, these guys will know.
The formula used by FICO cannot be disclosed because of a decision made by U.S. Congress. There are some things generally known about FICO which that could help you understand why and how you can get approved:
- The higher your FICO score, the better chance you have of getting that home mortgage loan. Also, the higher your score, the more room you have to negotiate a lower interest rate.
If you have a FICO score lower than 500, there is very little chance you’ll be getting a mortgage home loan.
That said, if you have a score of:
500 – 600 you should be able to get a home mortgage loan, provided you are willing to make a down payment.
600 – 640 You should get a 100% home loan financing. Thats right, with no money down.
640 – 700 You should be able to be approved for a 125% home mortgage loan. 700+ You’re in the drivers seat! You should be able to get an excellent rate with excellent terms.
- FICO is based on each credit report, so before you apply for a home mortgage loan, if you have bad credit history, get a copy of your credit report and make sure there is nothing on there that shouldn’t be there. If there is, get it changed before you apply for the home mortgage loan.
- Wait until after you have purchased or refinanced your home before you buy anything additional on credit. More loans or higher balances can have a dramatic effect on your mortgage approval, regardless of whether or not you had over a 600 FICO score before you bought on credit.
- Remember, the FICO score is only a part of your home mortgage loan application, so if at first you don’t succeed in getting your home loan mortgage, don’t give up. Some lenders may still be willing to lend to you!
People with bad credit often don`t understand how the credit scoring system works. It is beneficial to find out more about it when looking to get a home loan with less than perfect credit to bad credit or when dealing with sub prime mortgage lenders.
The bottom line? The cost of bad credit is high, no doubt -but the cost of repairing your credit can also be very expensive and many times you achieve little or no results. Credit repair is one of the most popular search terms on the Internet and consumers` continue to search for quick fixes. If you can learn anything from this page, understand there are NO quick fixes. Yes it is possible to repair your credit- millions do but don`t have such high expectations that you`re sorely disappointed in the end.