When creditors owe you money, they incur risk – risk that you will not pay on time, or even that you will not pay at all. If you fail to make timely payments, a creditor may have to spend time, energy, and money collecting debt, and if you never pay, your creditor could realize valuable losses.
Creditors agree to lend money only because they charge interest as compensation for their risk. Since your credit score is a measure of how likely you are to pay, both on time and in full (eventually), it has a major impact on your interest rates.
For example, borrowers with FICO scores of 760 or higher typically have a default rate of just 0.20%, or 1 out of 500. Borrowers with FICO scores of 539 or below, on the other hand, are nearly 100 times more likely to default with a rate of 19.10 percent; nearly 1 out of 5. Obviously, a lender will offer a person with excellent credit a much lower interest rate than someone with damaged credit. The lower the risk, the less a creditor needs to compensate for that risk.
Start Your Free Credit Repair Quote
Credit Card Laws: No Debt Reduction Help
Recent legislation designed to provide clear communications between credit card companies and their customers does not assist consumers with paying off debt faster. If you're slogging through a swamp of credit card debt, here are some debt reduction solutions.
Credit Counseling and Debt Settlement: Know the DifferenceIf you're struggling with too much debt, credit counseling or a debt settlement service can help. Both options help in reducing debt using different methods. Requirements and credit consequences can vary according to individual programs.
Debt Reduction Eight Steps Toward SuccessDebt help is available from credit counseling services, bankruptcy attorneys and debt settlement companies. If you're not ready to seek their assistance, try making debt reduction a family project.
How to Solve Tax Debt Created by a Spouse or Ex-SpouseDid your spouse or ex-spouse leave you with a tax debt problem, as well as a broken heart? Regarding the tax debt problem, you may have options. Here are two.
Five Personal Problems You Should Mention In an IRS AuditWhen working with the IRS to solve a tax debt problem, it's no use claiming "the dog ate my homework." However, certain personal situations do deserve mention.
Guide to No Cosigner Student Loans
Are you a would-be student who would like to attend college, graduate school, or professional school, but are hesitant because you…
The advantages of using your local credit union to refinance your mortgageLocal credit unions increasingly are popular alternatives to traditional banks. While banks are privately owned,…
Debt Consolidation for Senior CitizensFew people have more financial choices, yet more opportunities to be overwhelmed by those choices, than senior citizens. Seniors…
What is the Best Loan and Debt Repayment Program?Incurring debt sometimes is necessary in order to meet one’s financial and personal goals, or to make payments for necessary…
Bad Credit Student Loans for High Risk StudentsCollege costs nowadays are through the roof and are only expected to rise in the future. Most students and/or their parents…
