Many years ago, the main creditors, banks, mortgage companies, government agencies and others, got together and decided that they want a system to evaluate credit seekers, borrowers, as to their credit worthiness.
They came up with a system that seems so fair on the surface but so evil inside. This system consists of credit agencies that collect information on people and furnish their findings to the creditors, just for the asking, to make their decision when a poor borrower applies for a loan. There are many credit agencies but the big three, TRANS UNION, EXPERIAN AND EQUIFAX, dominate most of the business. It seems fair and their information is very important to the creditors… right? But where do they get their information? From the creditors themselves and public records. Their information are furnished in the form of credit reports and credit scores.
Here’s where the evil comes in. Those credit reporting agencies always look for ways to lower people’s credit scores so creditors can charge more and make more money. They use so many tactics to lower credit scores, here are a few.
- If you are making payment on a loan and was late on one payment for any reason, regardless of the reason.
- If some creditor report a derogatory remark on your report. Whether it’s true or not, your credit score takes a dive.
- If the ratio of your credit balance on credit cards, mortgage loans and any kind of loans, to your total credit available is more than 30%.
- If the ratio of your loan amount to your credit limit on the same loan is high. For example, if you have a credit card with a credit limit of $10,000 and you charge $9,500 on it, your score goes down.
These are just a few ways to lower your score to legally allow creditors to charge you more. Because the lower the credit score, the higher the interest rate charged if the loan was approved.
I once asked a banker, why do you charge more for lower score? He said because that means he’s a high risk. And I asked again, how charging him more would lower his risk? The banker had no answer.
I always try to keep my credit score at its highest. A few months ago, it was 757 which’s excellent. One day I checked it on line and it was 20 points lower, I was about to hit the roof. I looked at the credit report and found out that some company reported a delinquent loan from many years ago. I called the company and settled with them. They withdrew their reporting but my credit score is creeping up ever so slowly. As one man described it, he said, your credit score takes the stairs on the way up and takes the elevator on the way down.