LOW CREDIT SCORE – Does It Affect You?
John was given the marching papers at work a couple of months ago. He is still coming to terms with it. His pending bills and household expenses are piling up and he is struggling to make ends meet. His credit card debt outstanding is building up and he is only managing to pay the minimum balance. But that is only part of the interest. In a couple of months the amount will exceed his credit limit and he will be chased by the lenders to pay up. When he defaults, this affects his credit scoring. The last thing he needs is a low credit score. There are hundreds of Johns all over the world with credit scores hitting an all time low.
What is a credit score?
A credit score is a mathematical calculation where the credit worthiness of an individual is calculated by a method followed by the lenders. Basically the lender wishes to know whether you can repay his money. Your capacity to repay combined with your income and outstanding dues are calculated to arrive at your credit rating. There are software’s which calculate the credit worthiness of an individual. FICO scoring method is very popular today. A low credit score means your points are below four hundred. This may be due to default on dues or delayed payment of credit card outstanding and mortgages if any. If you are a first timer then also you start with a low credit score.
A low credit score means it’ll be difficult for you to secure a loan or advance money from banks or other financial institutions. Since there is no collateral there is no safety for the lender to bank on. When your credit scoring is low it is advisable to consolidate all your outstanding and pay as one loan.
If you are a first timer without any collateral then start with a student loan to open your credit line. If that is not possible then go in for loans with low interest rates and a small amount. If that is repaid without any hitch, then automatically the lender will top up or enhance your loan amount. By this method slowly but steadily you can improve your credit rating and reach the six hundred points mark to get a good credit score. These are some of the tips you can use to overcome a low credit score: Offer a larger down payment so that you aren't borrowing so much money. When your down payment is sizable, the lender gains confidence in you. Lower your debt-to-income ratio by paying off as much debt as possible before applying for a mortgage loan in order to increase your credit score. Don't buy a car just before applying for a mortgage loan as it lowers your credit score. Do consult an expert on this issue as he’ll be able to guide you and help you get out of this mess.
| 