Credit Report Scores - Why it is important for your finances
The airwaves these days seem to be full of advertisements for
consumers to obtain their credit reports and also apply for
credit cards. Apart from encouraging consumers to obtain their
credit reports, consumers are not told and do not fully
understand why it is that important. Most people, after all, can
obtain a credit card with an interest rate of say, 24.95%, and
can afford to make the repayments spread over a very long period
of time. The emphasis seems to be on "yes, I can afford the
repayment". And so many consumers start with one credit card and
go on to two, then three, four, five, six and on and on it goes.
There are consumers who have balances on more than twelve credit
cards. They have literally surrendered their financial will to
credit institutions that rule over their lives. The sad thing
about this situation is that the more credit card balances you
have the lower your credit score, and the smaller the chance for
you to obtain a loan for an important purchase like a house.
The way credit reports and credit cards are touted these days by
financial institutions, one would think that these two
"entities" share a common positive association. Nothing could be
further from the truth. Yes, you can establish an initial credit
profile by applying for one or two credit cards. Nobody is going
to argue with that position. When you start on your fourth
credit card, that's when trouble begins.
Credit costs a lot of money. Obtaining a loan, any loan is not
cheap, and will surely burn a hole in your pocket (take some
time to examine and acquaint yourself with how much money your
mortgage will cost you). How big a hole it burns depends on you;
in other words, the interest rate that you are prepared to pay
on the loan. This is what distinguishes the average "Joe" from a
millionaire when they both obtain credit from the bank. The
millionaire almost certainly has tangible collateral and
constitutes less risk to the bank. Joe's tangible collateral, on
the other hand, is non-existent.
In the eyes of the bank Joe's only collateral is his credit
report and fico score. He is therefore more of a credit risk
than the millionaire. Therefore, in terms of risk, do consumers
have a deep understanding of how much of a risk banks see them
when they have low credit scores as a result of bad credit
reports? If I were the loan officer, Joe is surely not getting
any loan from my bank! Or even if I were really kind and decided
to approve, I would hit Joe with a high interest rate so that I
recoup my "investment" as quickly as possible before Joe
defaults. With this knowledge, why wouldn't the average consumer
try to improve upon his credit score profile?
It is not only defaulting on a loan that would bring your fico
score down. Any number of things could do that to you. A tiny
piece of negative information on your credit report can ruin
your fico score or credit score. Most of the time consumers are
not even aware of this negative piece of information because
they don't have copies of their credit reports to be able to fix
errors. This is why providing basic information on credit report
scores is so important.
Without making any assumptions about the financial
sophistication of its visitors, Aba Online Credit
(http://www.aba-online-credit.com) presents information on the
importance of credit report scores in very simple language so
that it is not burdensome to the average consumer to read and
understand. The website is full of information on nearly every
important thing related to credit report score reports and even
tells you how to achieve or even improve on your credit score
(http://www.aba-online-credit.com/improve_credit.htm)