The airwaves these days seem to be full of advertisements for consumers to obtain their credit reports and also apply for credit cards. Apart from encouraging consumers to obtain their credit reports, consumers are not told and do not fully understand why it is that important. Most people, after all, can obtain a credit card with an interest rate of say, 24.95%, and can afford to make the repayments spread over a very long period of time. The emphasis seems to be on “yes, I can afford the repayment”. And so many consumers start with one credit card and go on to two, then three, four, five, six and on and on it goes. There are consumers who have balances on more than twelve credit cards. They have literally surrendered their financial will to credit institutions that rule over their lives. The sad thing about this situation is that the more credit card balances you have the lower your credit score, and the smaller the chance for you to obtain a loan for an important purchase like a house.
The way credit reports and credit cards are touted these days by financial institutions, one would think that these two “entities” share a common positive association. Nothing could be further from the truth. Yes, you can establish an initial credit profile by applying for one or two credit cards. Nobody is going to argue with that position. When you start on your fourth credit card, that’s when trouble begins.
Credit costs a lot of money. Obtaining a loan, any loan is not cheap, and will surely burn a hole in your pocket (take some time to examine and acquaint yourself with how much money your mortgage will cost you). How big a hole it burns depends on you; in other words, the interest rate that you are prepared to pay on the loan. This is what distinguishes the average “Joe” from a millionaire when they both obtain credit from the bank. The millionaire almost certainly has tangible collateral and constitutes less risk to the bank. Joe’s tangible collateral, on the other hand, is non-existent.
In the eyes of the bank Joe’s only collateral is his credit report and fico score. He is therefore more of a credit risk than the millionaire. Therefore, in terms of risk, do consumers have a deep understanding of how much of a risk banks see them when they have low credit scores as a result of bad credit reports? If I were the loan officer, Joe is surely not getting any loan from my bank! Or even if I were really kind and decided to approve, I would hit Joe with a high interest rate so that I recoup my “investment” as quickly as possible before Joe defaults. With this knowledge, why wouldn’t the average consumer try to improve upon his credit score profile?
It is not only defaulting on a loan that would bring your fico score down. Any number of things could do that to you. A tiny piece of negative information on your credit report can ruin your fico score or credit score. Most of the time consumers are not even aware of this negative piece of information because they don’t have copies of their credit reports to be able to fix errors. This is why providing basic information on credit report scores is so important.
Without making any assumptions about the financial sophistication of its visitors, Aba Online Credit (http://www.aba-online-credit.com) presents information on the importance of credit report scores in very simple language so that it is not burdensome to the average consumer to read and understand. The website is full of information on nearly every important thing related to credit report score reports and even tells you how to achieve or even improve on your credit score (http://www.aba-online-credit.com/improve_credit.htm)
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Written by: Kofi Assan