How Bad Credit Affects Interest Rates And What To Do About It

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Credit unions don't need reminding about the recent rise in consumer bankruptcies. In 2002, 1.5 million consumers filed personal bankruptcy, 249,000 at credit unions. Short of bankruptcy, the poor economy and high debt levels have many consumers suffering credit stress.

One of the big relief valves for consumers with credit problems is under pressure. Credit counseling is taking hits fr... Read credit counseling article



Tackle Credit Repair
Though you're in debt at this time, if you dig down deep and decide to fight for your financial freedom back, you can surely find a solution. Credit repair becomes a necessity in some of our lives at times since we do not always have great debt management skills going into adulthood.

The creditors that have lent us money are doing so in good faith and under the assumption that they will... Read credit counseling article



How Bad Credit Affects Interest Rates And What To Do About It
There is a wide spread myth that people with bad credit score and those who have filed bankruptcy will never get a credit card, car loan or home mortgage again in their life. Whatever the origin of this thinking, the fact is that even after having the worst kinds of credit, or even one day after filing bankruptcy, you can still get a credit card, a car loan or a home mortgage loan.

Effects of Bad Credit on Interest Rate

People having bad credit should remember that while they are eligible to receive any kind of loan, but they won't get it at the same interest rate at which a person with good credit would get. On the basis of the intensity of their problems, the experiences of the people with bad credit will vary from each other.

Some problems impact all bad credit debtors, but their severity is different and even the interest rates may be higher. Although this differentiation will astonish or offend a lot of people, if they maintain their cool, they can understand it. A rate of interest is calculated by taking into account the prevailing nationwide general rate of interest when the loan is granted and the specific risk associated with that particular loan.

Usually, in the US, the prevailing rate of interest is known as the prime rate, which refers to the rate of interest that a bank may charge its best clients. Because of competition, this prime rate is the same at most of the banks with very little variation. You can know about the current prime rate either online or from any financial publication. Other base rates are decided by LIBOR (London Interbank Offered Rate) or a particular treasury bill, which refers to a bond for certain term of years issued by the U.S. government. These rates generally determine mortgage rates, while the prime rate determines most credit cards and car loans rates.

Other elements of credit are seen as an addition to this rate, for instance prime plus 1% or LIBOR plus 10%. These add-ons are usually decided by the type of debt.

Some Examples

For instance, a home equity loan where the borrower's house is placed as security will be accompanied by little or no special extra risk as the lender considers the house as the collateral. He knows that the borrower will make all efforts to pay off the debt. On the other hand, an unsecured personal loan is accompanied by the risk factor. So, the creditor will increase the interest rate by adding 6% or more to the prime rate.

It is common knowledge that the people with past bill payment problems will get loans at comparatively higher Interest rates than those with perfect records because good credit scores will satisfy the lender that he will get his money back.

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How to Get Rid Of Credit Inquiries

When someone asks you, "How long do credit inquiries stay on a credit report?" Be sure to tell them that while the fat cats won't dump the potential damning inquiries for two years, with a little leg work(that's code for money), and a lot of elbow grease (that's code for, be prepared to make a lot of calls), you can get rid of inquiries yourself.

Step One: Request copies of your credit report from all three of majors. Each report will include an inquiry section. Now the inquiry section will include two types of credit inquiries, those that are promotional (you were selected as a part of a cattle call and mass mailed pre-approval applications) and those that aren't promotional.

As pesky as those mass mailings can be, it's the latter that you should be most concerned with. The Mercedes dealer you pestered incessantly the same week that you applied for store charges at Arben B, Bebe, and Nordstrom's, can be a problem. If you haven't applied to some places not listed as promotional inquiries, they've got to go too. The first step is finding out what's in your inquiry section.

Step Two: Locate the addresses of the inquiring creditors; this'll be important for Step Three. Experian is the only one of the three credit bureaus that lists addresses of inquirers. If something is on one of the other credit reports that doesn't appear on the Experian report (reports won't always have the same information), then call Equifax. It's almost a Herculean task to get someone on the phone at Trans Union.

Step Three: Once you've figured out which inquirers are causing you problems, simply inform them in writing that you would like for them to remove the inquiry from your credit report. This will likely cause an uphill battle, but a few connotations to the effect of "I sue," and challenging that you did not understand that you were authorizing an inquiry to be placed in your report (which is true) you can ultimately win the war.

So the next time someone asks you, how long do credit inquiries stay on a credit report, answer with, "Until they get tired of fighting."




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How Bad Credit Affects Interest Rates And What To Do About It
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