Many people may have an unshakable belief that debt is a bad thing, but this isn’t true. In fact, taking on small debts and paying them responsibly can positively affect your financial future.
Conversely, not paying your debts can have consequences–it all comes down to your credit report and credit score. Sadly, many Americans may have a terrible credit score thanks to inaccurate information they have no idea is lurking on their credit reports. These issues are best left to professional credit clean-up companies, as your credit can affect your life in big ways.
What Is a Credit Report?
Back in the day, if you needed money from a bank, a banker would have to take your word that you’d repay the loan. In many places, whether or not you got approved for a loan depended on your reputation. In small towns, this was simple. In major cities with major banks, however, getting a loan was considerably more difficult, and you typically needed to be a customer of a bank for quite some time before they would give you a loan.
In the 1960s, the concept of credit reports started to become more solidified. Three companies now hold the keys to your financial history: Equifax, Experian, and TransUnion. Together, they make up America’s credit reporting bureaus.
Every time you take out a loan, open a credit card, or rent an apartment, your credit report is accessed to see if you meet the requirements for approval. Every account that you currently have or have previously had in the past seven years will be listed there. Bank names, balances due, and monthly payments are also visible on your credit report. Your payment history is also visible. Any payment that has gone more than thirty days past due will be listed.
The credit reporting bureaus take all of this information and use it to come up with what is known as your ‘FICO’ Score. This is a number between 300 and 850, with most lenders requiring a score in the mid-600s to be approved for a loan.
That thirty-day late payment we mentioned can tank your credit score by one hundred points or more. If your credit profile is already on the brink of passable, one late payment can bring your score to a point where almost no lender will loan you money.
How Does This Affect Me?
Assuming you do get approved for a loan, your credit score is a huge factor in determining the interest rate you receive. For things like unsecured credit cards, the effect may be dramatic, such as 20% interest for a poor credit score and 10% interest for a great credit score. With mortgages, the effect is smaller, perhaps creating a difference of only one or two percent.
While that may not sound like much, if you take out a $300,000 thirty-year mortgage and your interest rate is 4% rather than 5%, you will save over $60,000 by the time the final payment is made. Using this example, you can see how credit scores can impact your financial situation dramatically.
The Phenix Group Is on Your Side
Millions of Americans may have inaccurate items tanking their credit scores without their knowledge. Thankfully, reputable credit repair companies such as The Phenix Group are here to help get these inaccuracies removed.
This is an arduous process, but thanks to our expert financial and legal professionals, your case can be sorted out sooner rather than later. With our help, your credit score can improve drastically, and you’ll feel the difference the next time you apply for a loan or credit!