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Information found at www.cheatsheet.com
How much do you really know about credit scores? Though your credit score affects everything from your ability to rent an apartment to how much you’ll pay every month on your car loan, many people aren’t sure how scores are calculated, don’t know what the scores are used for, and believe common credit score lies and myths that cause them to make dumb money decisions. So what’s the truth behind this all-important number?
“Your credit score plays a pivotal role in your financial journey. As far as numbers go, it’s one of the most important that will ever be attached to your name,” Julie Pukas, head of U.S. bankcard and merchant services at TD Bank, told The Cheat Sheet.
The majority of people understand that mortgage lenders and credit card companies use credit scores when making lending decisions, a recent survey by the Consumer Federation of America (CFA) and VantageScore found. Most also know that declaring bankruptcy or making late payments will hurt your score. But beyond those basics, misinformation and credit score lies abound. Only 25% of people surveyed by the CFA were aware that a low credit score could increase the cost of a car loan by $5,000, and more than half didn’t realize landlords, utility companies, cellphone companies, and insurers sometimes check credit scores.
“Many people scorn credit, but the simple fact of the matter is that in most situations, your credit score is a deciding factor in whether you’ll be approved for a mortgage, car loan, credit card, or another type of loan,” Pukas said. “If you’re looking for an apartment, your score may impact your probability of getting approved, the size of your security deposit, and how much you pay in fees. It can also impact how much you pay for home and auto insurance and might even decide whether you’re approved for a new cell phone plan.”
Being misinformed about credit scores or believing credit score myths can have serious financial consequences, whether you’re a borrower or not. You can boost your credit savvy by familiarizing yourself with the truth behind these seven big credit score lies.
There are two basic categories that most loan types fall into – Unsecured and Secured.
On the other hand, unsecured loans are the opposite of secured loans and include things like credit card purchases, education loans, or personal (signature) loans. Lenders take more of a risk by making such a loan, with no property or assets to recover in case of default, which is why the interest rates are considerably higher. If you have been turned down for unsecured credit, you may still be able to obtain secured loans, as long as you have something of value or if the purchase you wish to make can be used as collateral.
When you apply for a loan that is unsecured, the lender believes that you can repay the loan on the basis of your financial resources. You will be judged based on the five (5) C’s of credit — character, capacity, capital, collateral, and conditions – these are all criteria used to assess a borrower’s creditworthiness. Character, capacity, capital, and collateral refer to the borrower’s willingness and ability to repay the debt. Conditions include the borrower’s situation as well as general economic factors.
Society is becoming increasingly dependent on using credit to make purchases and decisions. These days, good credit is used for more than just getting a credit card or a loan. More and more businesses are making the case that you must have good credit before they extend products or services to you.
It Affects Where You Live and How Much You Pay
Before you can buy a house, mortgage lenders want to know that you won’t default on your mortgage.
If you don’t have good credit, the lender will consider it risky to give you a mortgage loan. If you’re approved for a mortgage your credit affects your interest rate which directly impacts your monthly mortgage payment. Bad credit could mean a higher mortgage payment. Worse than that, your mortgage application could be turned down because of your bad credit.
Got bad credit? You’re not alone. According to a breakdown of credit bureau Experian’s 2015 VantageScore 3.0 data, close to one-third of Americans have a credit score lower than 601 — and, yeah, that’s not so hot. Finding out you’re in that lowest credit echelon often comes at the worst time. You’ve just applied for a credit card, a car loan, a mortgage or even an apartment, and you were rejected. Along with the dream-crushing news comes a letter that spells out the reasons you weren’t approved. It may say things like “Too few installment accounts” or “No recent revolving account activity.” And even though they’ve given you reasons why your credit isn’t good enough to be approved, you’re still lost on how to actually fix your credit.
Time for a Credit Repair?
Nobody likes to have their security compromised even more so to have one’s identity stolen. As much as we want to be exempted from identity theft, there is just no guarantee that we won’t be targeted by those culprits. This doesn’t mean that you should take the security of your identity lightly; on the contrary, you have to be even more alert and vigilant.
If a time will come that you think you may fall prey to credit card fraud or identity theft, don’t hesitate to take the necessary actions to prevent it from happening. For example, if you have lost your wallet with your credit cards and social security card in it, don’t delay in contacting your creditor and have the card cancelled. Then immediately have a fraud alert placed on your credit report to help prevent a possible identity theft.
The name itself explains it; fraud alert basically notifies businesses or anyone who would pull up your credit report that your information has been compromised. The entities that have pulled up your credit report would then have to take extra measures in verifying that the person applying for a loan or a credit card is indeed you.
Placing a fraud alert on your credit report is free and you can do it on your own. So there shouldn’t be a reason for you not to activate this feature, if your personal information gets compromised.