The Cost Of Bad Credit

Bad credit costs you in more than the extra interest you have to pay. Bad credit can lead to reduced opportunities, family stress, and having to associate with lenders who see you as a mark. Here are some of the unpleasant consequences of bad credit. 
  • Fees: Creditors may add fees, such as late fees, over-limit fees, legal fees, repo fees, penalty fees, deficiency payments, and default rates, to your balance.As bad as the fees can be on your credit cards, they can be even worse on your secured loans. If you fall behind in your house payment, you can be hit with huge fees to the tune of thousands of dollars.
  • Higher interest rates: The lower your credit score, the higher the interest rate you have to pay. Making matters worse, the policy of universal default says that if you have an issue with one lender, all your lenders can hike your rates, even though you’re still paying the others on time and as agreed.
  • Less than favorable loan rates: In a time of tight credit, you may not qualify for a loan at all.
  • Lost employment opportunities: Increasingly, credit checks are a standard part of the hiring and even the promotion process at companies large and small throughout the United States. Businesses reason that the way you handle your finances is a reflection of your behavior in other areas of your life.
  • Higher insurance premiums: A strong correlation exists between bad credit and reported insurance claims. Insurance companies run a credit check when determining your premium, so bad credit may cost you a bundle in insurance-premium increases or result in your insurance being denied.
Here are some statistics to help you better understand what this means: 

Mortgages with Bad Credit

How bad credit affects home loans –

The 30-year fixed jumbo home mortgage APR’s are estimated based on the following assumptions. FICO scores between 620 and 850 (500 and 619) assume a Loan Amount of $300,000, 1.0 (0.0) Points, a Single Family – Owner Occupied Property Type and an 80% (60-80%) Loan-To-Value Ratio.

Take a look at the chart below. Notice how a low FICO score increases the amount of money you will end up spending on a loan throughout the course of its life. If your FICO score is below a 560, most lenders will not even consider offering you a jumbo loan for a FICO score that low. If you want to save money and stay away from bad credit mortgages, sign up here!

Credit Score Rate Payment Added Cost
Excellent 720-850 4.31% $1,487 $0
700-719 4.53% $1,526 $14,040
Moderate 675-699 4.71% $1,558 $25,560
620-674 4.93% $1,597 $39,600
Bad 560-559 5.36% $1,676 $68,040
500-559 5.90% $1,780 $105,480

 

Auto Loans with Bad Credit

The 36-month new auto loan APRs are estimated based on the following assumptions. A Loan Amount of $25,000, 36 months and Interest rates are fixed for the term of the loan. (Variable rate loans may be available but are not usually beneficial to a consumer in a low interest rate environment.)

Credit Score Rate Payment Added Cost
Excellent 720-850 5.30% $753 $0
700-719 6.83% $770 $612
Moderate 675-699 8.78% $792 $1,404
620-674 12.36% $835 $2,952
Bad 560-559 18.20% $906 $5,508
500-559 19.23% $919 $5,976

Identity Theft Just Keeps Getting Worse

 

Approximately 15 million United States residents have their identities used fraudulently each year with financial losses totalling upwards of $50 billion.

That means approximately 7% of all adults have their identities misused with each instance resulting in approximately $3,500 in losses.

Close to 100 million additional Americans have their personal identifying information placed at risk of identity theft each year when records maintained in government and corporate databases are lost or stolen. These alarming statistics demonstrate identity theft may be the most frequent, costly and pervasive crime in the United States.

The sophistication level of professional identity thieves continues to grow along with the methods they develop. From individually tailored phishing and vishing scams, to increasingly successful hacks of corporate and government databases, to elaborate networks of botnets designed to hijack millions of computers without any trace, there is an ever-increasing threat to all Americans.

At the same time, basic methods of identity theft continue unabated. From stealing wallets and purses, to dumpster diving and stealing mail, to the use of pretext and social engineering to deceive customer call centers into releasing personal account information, the original methods of identity theft still work.

One of the new methods of identity theft is coming from an everyday item that sits in your pocket. The new wireless technology that is built into credit cards and so- called speedpassses can be scanned while it is in your pocket or even your handbag. While you are walking down the street or getting out of your car, thieves just have to pass by you with a receiver and steal your information. Watch the video at the top of the page

As the methods used to perform identity theft expand, so do the types of accounts and services being stolen by identity thieves. Credit, debit, checking and saving accounts are no longer the only targets. Identity fraud has grown to include theft of cell and landline phone service; cable and satellite television service; power, water, gas and electric service; Internet payment service; medical insurance; home mortgages and rental housing; automobile, boat and other forms of financing and loans; and, government benefits. Identity thieves will also use stolen identities to obtain employment and to deceive police when arrested.

Quite simply, every individual or business is vulnerable to attack when it comes to personal or corporate information, products and services.

FICO Score vs VANTAGE Score

There is some confusion going on lately about the credit score range and about the credit scoring in general. We believe this is caused by the recent introduction of the VantageScore in addition to the FICO score that we are all used to as a ‘classic’ or common credit score. Let us outline the main differences between the two to clear up this confusion.

VantageScore range vs. FICO – score range

VantageScore range: 501-990
FICO range: 300-850

As you can see the two scores overlap but the range is quite different. This is where, we believe, the rumors about the existence of FICO scores over 900 are coming from. When presented with their credit scores by the lender, most people don’t pay attention on which brand that score is as most are not even aware that there is more than one.

VantageScore vs. FICO – letter grading

VantageScore: A to F
FICO: none

VantageScore number is associated with a letter grade. FICO doesn’t use letter grading.

VantageScore vs. FICO – score usage

Based on what we’re seeing when working with major lenders, only FICO score is used when obtaining Mortgage Loans. On some occasions, we’ve seen VantageScore being used to qualify consumers for Home Equity Line of Credit (HELOC) and Car Loans. So as of now, in order to get better interest rate when getting a new mortgage, concentrate on repairing your FICO score only.

VantageScore vs. FICO – consumer advantages

From what we understand by studying the White Papers, the VantageScore is more ‘relaxed’ than FICO in general. In our opinion, it is designed to better accommodate certain groups of consumers that FICO algorithm most likely will score very low. Indeed, the VantageScore should provide higher credit ratings to these consumers with thin credit history file:

– young adults just starting their careers
– recently divorced or widowed individuals with little or no credit in their own name
– newly arrived immigrants
– previous bankrupts
– people who shun the traditional banking system by choice

Using FICO, these would have made to be sub-prime mortgage candidates! In any case, simply based on the range comparison, your VantageScore will always be higher than your FICO score.

VantageScore vs. FICO – credit scoring model

With FICO, the three credit bureaus, Equifax, Experian and TransUnion, each uses its own Scoring Model when calculating the score, and applies it to its own data.
With VantageScore, the three credit bureaus use a collectively developed Scoring Model … but still apply it to each own data. “While there will still be some score variation with VantageScore due to differences in the data provided to the individual CRCs (credit reporting companies) for each consumer file, the gaps among the results generated via VantageScore are diminished because the credit scoring model itself and the underlying credit characteristics in the algorithm are the same at all three CRCs.”, as company explains.

VantageScore Score Consistency

Will there now be just one consistent score per consumer across the three Credit Agencies?
“No. While the three credit agencies, Equifax, Experian and TransUnion, can now generate scores using the same underlying credit scoring model, differences in the actual scores are to be expected because each agency maintains its own consumer credit files, which may vary. Consumers’ files at each credit agency can vary because credit grantors can choose which agency they provide consumer payment data.”, as according to company.

How Credit Is Calculated

· 35% Payment history
· 35% Amounts owed
· 15% Length of credit history
· 10% New credit
· 10% Type of credit

– Stay away from small department store cards; they have a low limit and tend to bring down your overall score.
– You must use credit in order for it to report to the bureaus.
– If you do not use a card it may be cancelled by the bank – this WILL hurt your score.
– Never use more than ½ of your available credit line.
– Ask for line increases.

How Do They Calculate a Credit Score?
Different credit bureaus calculate your Fico or Beacon Score slightly different. Each credit bureau makes the score their own and gives it a different name. Equifax calls the score a Beacon Score, Experian calls it a Fair Isaac Score and Transunion calls it an Empirica Score. Every time something changes on your bureau, your score will change. A lot of information is used to calculate your score; however, there is no formula that has ever been given to the public. Lenders will look at your score along with your income and the kind of loan you are applying for to determine interest rates.

Improving Your Credit Score
Here are some suggestions on how you can begin making some changes.
· Pay your bills on time. This sounds simple, but this is the biggest thing you can do to keep your score high. Delinquent payments and collections have a major negative impact on your score.
· Keep your balances low on unsecured revolving debt like credit cards. High balances still owed can affect a score.
· The amount of unused credit is an important factor in calculating your score. You should only apply for credit you need.
· Make sure the information on your credit report is correct. If it is not, dispute it with the Bureau Company or lender directly.
· Removing negative accounts on your credit report has the biggest impact on your score.

Credit Repair – Some Common Questions And A Few Myths

How long does information remain on my report?
Generally negative things can stay on your credit for 7 to 10 years. But you can hire a professional credit repair service to do it for you.

Credit bureaus report credit information for a period of seven (7) years. Some states have special provisions for collections and paid liens. Chapter 7, Chapter 11 and Chapter 13 Bankruptcies are each reported for 10 years and the date is measured from the date of the filing.

Does paying off my bills repair my credit?
The credit reporting system doesn’t work that way. When you pay an old debt, the negative credit listing doesn’t disappear. In fact, it re-ages and the seven year clock begins again with that negative listing. The most ironic thing is that a paid, current negative listing is not any better than an unpaid negative listing.

How does a Credit Bureau make money?
A credit bureau is a commercial business. It makes money by selling your credit report to others. A person with bad credit means more business for them as such a person applies for credit about ten (10) times more than a person with good credit.

Why do Credit Bureaus not want me to use a Credit Repair Company?
The credit bureaus will tell you that it is easier and less expensive to do it yourself. While it may be true that you have the right to repair your credit yourself, many individuals do not have the time, experience and organizational savvy necessary to deal with bureaucracies. You must also spend hours of study to gain a working knowledge of the consumer laws available to you. Many who start repairing their credit turn to a credit repair company after months of work.

What can you take off of my credit bureau report? Aren’t these items impossible to remove?
We can take off unpaid collections, charge-offs, repossessions, bankruptcies, medical bills, foreclosures, tax liens, civil liens, judgments, student loans, credit card debt, inquiries, slow pays, old addresses and all incorrect names.

How does TRW Credit Group do this legally?
Disputing your credit report is your right. Credit restoration is as legal as pleading “not guilty” in a court of law. The Federal Trade Commission and The Consumer Credit Protection Act have enacted 100’s of regulations that the reporting and collection agencies have to adhere to in order for an item to remain on credit reports. The Fair Credit Reporting Act gives you the legal right to dispute items on your credit reports that may be inaccurate, out of date, incomplete or unverifiable.

We challenge the credit agencies how they posted the information. Are they in compliance with all of these laws? And more often than not, they are not in compliance and we have them remove the negative information.

How much does a low score cost you?
Having a low score can cost you thousands of dollars. The higher score you have, the lower interest rate you will have. The lower interest rate that you have… the less money you will pay!
$100,000 mortgage over 30 years

Home Loans
••       Category                       Interest Rate       Payment      Total Cost After 30 Yrs
••       Prime                               6.50%               $632            $228,625
••       Alternative A                    7.50%               $699            $251,715
••       Subprime                         10%                  $877            $315,925