I am going to tell you a story about some people who I shall not name. So if you think this story is about you, just look straight ahead and no one will know that I am talking about you!
I have always preached since I was a teenager about the danger of using credit. When I was in my forties, I told someone when they came of age, 18 years old not to sign for anyone’s loans and told that person what can happen if they do. The person did not listen to me and cosigned for a van for a person with very very very bad credit. That person with the bad credit never made a payment on the loan. The bank came and took the Van. No one contacted the cosigner because the person who had the van made sure the cosigner never found out. That cosigner went through 4 years of college.
Then a big name company wanted to hire the cosigner. All they had to do was check the cosigner’s credit and that person had a high paying job. That is when the loan came back to bite the person “up the ass.” That person did not get the job and the person who screwed the cosigner had no explanation of why they did what they did.
More and more employers are checking credit reports before hiring people for good jobs.
According to AARP, because of bad credit, these items below will cost you more in the long run;
Car Insurance Premium
If you thought car insurance companies kept tabs only on your driving record to determine how much you'll pay for coverage, you'd be wrong. Insurers check your credit report — and poor credit drives up your premium.
Mortgage Interest Rate
If you're in the market for a home loan and your credit is spotty, you'll likely pay tens of thousands of dollars more in finance charges. According to FICO, the credit scoring company, an individual with a FICO score ranging from 760 to 850 would pay $1,426 a month for a $300,000 home loan based on a rate of 3.965 percent. A borrower with a lower score, from 620 to 639, would pay nearly $300 more each month — $1,714 for a 5.554 percent loan. Over a 30-year term, that lower credit rating is costing you an extra $103,444 in interest charges.
Homeowners Insurance
Just as car insurance companies review your credit rating, so do companies that provide homeowners insurance. The National Association of Insurance Commissioners reports that 95 percent of auto insurers and 85 percent of home insurers use credit-based insurance scores in states where it's deemed an underwriting or risk classification factor. So if your credit nose dives, your homeowners insurance premium may head north.
Your Job Prospects
Poor credit could cost you a job opportunity as I just told you. A 2012 study from the Society for Human Resources Management found that nearly half of U.S. employers use credit checks on some or all of their job applicants. I know that my daughter does before she hires anyone for a job. So if your credit history isn't so great, that could scare away potential employers and make it harder to find work. A growing number of states are passing laws to curb these credit screenings, although many states allow employers to use them as part of the hiring process.
Government Clearance
Enlisted personnel and certain federal workers need to maintain good credit in order to obtain various government clearances. Having bad credit could derail military members or government employees who are seeking promotions or career advancement opportunities.
Your Love Life
No one likes to be rejected by potential suitors, whether it's due to a lack of chemistry, your appearance or some other reason — like your credit history. A staggering 75 percent of women, and 57 percent of men, say credit scores play into their dating decisions, according to a survey of 1,000 single adults from FreeCreditScore.com. Most respondents said money management skills were just as important as looks in deciding if someone was worth pursuing. In today’s world who wants someone who is an economic burden. “I can do bad by myself.”, as I heard people say.
Your Physical Health
Financial stress can lead to headaches, sleepless nights, muscle tension, and other maladies. Researchers have even discovered that fretting over financial matters negatively affects people's brains, partially because such mental distractions make you lose focus.
Private Student Loan Rates
Federal student loans have interest rates that are set annually by the government. That's not the case with private loans. If you're considering going back to school to boost your marketability and have a poor credit rating, your student loan interest rates could soar into the double digits if you take on a private loan. Big student loan obligations could leave you with less to sock away for retirement.
Credit Card Options
Applying for a credit card almost always requires a credit check. If your credit is somewhat blemished, a bank may offer you a credit card with an above-average interest rate. If your credit is worse than that, you may be offered a credit card with an interest rate of 20 percent or more. For people who've suffered through a bankruptcy, foreclosure, or other credit catastrophe, a "secured" credit card may be your only option. Secured cards require you to put up a cash deposit as a way to assure a lender that you'll pay your bills.
Your Good Name and Reputation
It's one thing to have bad credit with traditional lenders like banks, credit unions, and other financial institutions. But if your repayment track record is seriously tarnished, you may even have a bad reputation with family and friends. Perhaps you've borrowed money and not repaid it, or you took far longer than agreed to make good on a loan. If that describes you, your good name has been dragged throw the mud. Such financial lapses will make it far more difficult to convince relatives to come to your rescue if a true financial emergency arises.
Your Life is Controlled by your Credit Score
A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information typically sourced fromcredit bureaus.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.
Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments employ the same techniques. Credit scoring also has a lot of overlap with data mining, which uses many similar techniques. These techniques combine thousands of factors but they are more or less similar or the same.
In the United States, a credit score is a number based on a statistical analysis of a person's credit files, that in theory represents the creditworthiness of that person, which is the likelihood that people will pay their bills. A credit score is primarily based on credit report information, typically from one of the three major credit bureaus: Experian, TransUnion, and Equifax. Income is not considered by the major credit bureaus when calculating a credit score.
There are different methods of calculating credit scores. FICO score, the most widely known type of credit score, is a credit score developed by FICO, previously known as Fair Isaac Corporation. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender. All credit scores have to be subject to availability. The credit bureaus all have their own credit scores: Equifax's ScorePower ( FICO score from Equifax ), Equifax Credit Score, Experian's PLUS score, and TransUnion's credit score, and each also sells the VantageScore credit score. In addition, many large lenders, including the major credit card issuers, have developed their own proprietary scoring models.
Studies have shown scores to be predictive of risk in the underwriting of both credit and insurance. Some studies even suggest that most consumers are the beneficiaries of lower credit costs and insurance premiums due to the use of credit scores.
Different lending institutions have different considerations on what is a good score for their loans. According to creditscoring.com, Fannie Mae, and Freddie Mac consider that any buyer with a credit score above 620 is good, while Lending Tree and Bankrate.com among others consider anything above 750 to be excellent. CBS.com states "The best number to have is 720 or above. If your score is 720, there's really no need to try and raise it because lenders lump you in the same category as folks with a score of, say, 800 or 820." My credit score is 786. When I want to buy something such as a house or a car, I have no problem getting it. I walk into a bank and ask for a loan and all I hear is “when do you want it?” That is the advantage of having a high credit score.
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