Determining Your Eligibility
If you are currently struggling with your financial past, you are certainly not alone. The latest research suggests that close to 45% of Americans have less-than-desirable to poor credit. FICO estimates that 30% of consumers pay bills more than 60 days past the due date and 10% repay bills once they are more than 3 months overdue.
Why the Score Matters
Perhaps the most important aspect of a credit report is timely payment of bills by the consumer in the past. FICO monitors bill payments to determine consumer eligibility, assigning scores on a scale from 300 (poor) to 850 (excellent). The majority of American consumers fall between 650 and 799, which is considered average. So what does this mean for those who struggle with finances? To begin, it can be challenging to qualify for a traditional secured bank loan. Banks look closely at a customer's FICO score before approving or denying a consumer. Furthermore, if you are shopping for a home or automobile, you can be sure your report will be examined.
How is a FICO Score is Determined?
35% Payment History - Do you pay your bills on time?
30% Utilization - Your current debt to available (unused) credit ratio
15% Length of Report History - How long have you been a borrower?
10% Types of Credit Used - Types of borrowing you partake in (finance, installment, mortgage)
10% Recent Searches - Recent borrowing requests
Can I Get a Loan Anyways?
Perhaps you have heard negative reports about lending to people with sketchy financial pasts. Thankfully, there are viable options for those who struggle with money. Some banking institutions will look past less-than-desirable financial history if the customer has sufficient collateral to qualify for a secured borrowing option. This may be a high value asset such as a vehicle or home, which would increase the amount the customer could borrow. For those with financial blemishes and little to no assets, unsecured services are an alternative. Unsecured advances require no collateral. These short-term unsecured lending options typically come with higher interest rates because they are easier to qualify for and are considered a higher risk by lenders. Those struggling but need money to pay expenses can easily be caught in a vicious cycle. Payday loans are marketed towards this group by a variety of lenders. Critics cite high interest rates as an element of predatory lending. Payday lending proponents argue that the higher financing levels of these lending services reflect the risk associated with the particular lending demographic that typically apply for these types of services.
Steps to Improving Your Standing
In order to increase the chances of qualifying for a variety of borrowing options, it is important to take the steps necessary to improve your case. To begin, take an inventory of all outstanding debts. List these debts in the order of their interest rate percentage, from high to low. Some financial analysts recommend paying off the lowest balances first if the interest rates are similar in order to build confidence. Create a strategy to pay at least the minimum amounts due on time in order to boost the payment history aspect of your report. For some, consolidating debts onto a card with a lower APR is a smart decision. Depending on your situation, you may qualify for a lower interest option. Be sure to discuss your situation with a finance counselor or personal banker.