Fix Your Credit Score and Benefit from the Credit Crunch
- By Stuart Hunter
- Published 03/27/2009
- Credit
- Unrated
As is usually the case, even things as troubling as the current credit crunch have a silver lining. In the case of the credit crunch, the silver lining is that prices for big ticket items are dropping. Plummeting interest rates with already decreased asking prices combine to make now one of the premier times in decades to purchase a home, refinance your existing home, or get a new automobile.
But there is a catch.
Not everybody can take advantage of this opportunity. Credit today is more difficult to come by, hence the term "credit crisis". After years of irresponsible lending practices and an unprecedented number of defaulted loans and foreclosures, lenders have had to become more conservative in their lending practices. Today, they are only willing to extend credit to the lowest risk consumers.
Lenders largely determine credit risk by looking at your credit score. A low credit rating tells them that you can't be counted on to repay your debts on time and maybe not at all. As a result lenders will deny credit to people they feel are too high of a risk, and charge higher interest rates to those who are an average credit risk to ensure they can still turn a profit even if a small percentage of those people default on the loan.
Today, lenders threshold for risk is far lower than it has been in previous years. A credit score in excess of 750 is now required by many lenders to get approved for a loan with the lowest interest rate and the best terms. A credit score lower than 750, and you have to pay extra. Too far below, and you run the risk of not being approved for loans at all.
But what happens if your credit score says you are a poor credit risk, even though you really aren't?
Credit reporting errors, imperfect scoring models, and irrelevant negative credit information combine to give many people a credit score that is not representative of their actual credit risk. They are dependable consumers who can be counted on to pay their bills, but their credit scores tell a different story. For people in this situation, fixing their credit may be the best option for getting the credit rating they deserve.
So if your credit score is holding you back, don't just wait for things to improve on its own. You have the right to a fair and accurate credit score and there are things you can do to fix your credit. Take action today and you may even be able to benefit from the credit crisis.
But there is a catch.
Not everybody can take advantage of this opportunity. Credit today is more difficult to come by, hence the term "credit crisis". After years of irresponsible lending practices and an unprecedented number of defaulted loans and foreclosures, lenders have had to become more conservative in their lending practices. Today, they are only willing to extend credit to the lowest risk consumers.
Lenders largely determine credit risk by looking at your credit score. A low credit rating tells them that you can't be counted on to repay your debts on time and maybe not at all. As a result lenders will deny credit to people they feel are too high of a risk, and charge higher interest rates to those who are an average credit risk to ensure they can still turn a profit even if a small percentage of those people default on the loan.
Today, lenders threshold for risk is far lower than it has been in previous years. A credit score in excess of 750 is now required by many lenders to get approved for a loan with the lowest interest rate and the best terms. A credit score lower than 750, and you have to pay extra. Too far below, and you run the risk of not being approved for loans at all.
But what happens if your credit score says you are a poor credit risk, even though you really aren't?
Credit reporting errors, imperfect scoring models, and irrelevant negative credit information combine to give many people a credit score that is not representative of their actual credit risk. They are dependable consumers who can be counted on to pay their bills, but their credit scores tell a different story. For people in this situation, fixing their credit may be the best option for getting the credit rating they deserve.
So if your credit score is holding you back, don't just wait for things to improve on its own. You have the right to a fair and accurate credit score and there are things you can do to fix your credit. Take action today and you may even be able to benefit from the credit crisis.