What Makes a Low Credit Score?

What Makes a Low Credit Score?

With all the talk of the economy, it makes you wonder what really happened. Ultimately, it was everyone's fault; the banks and the consumer. The banks offered products they knew they shouldn't have, and the consumer took loans they knew they couldn't really afford. So now, in the fray of what's happening there is danger lurking with too many low credit scores. Some may now have scores so low, that there isn't anything the banks can do for them; this includes getting an FHA loan.

A low credit score poses a real problem. Why? Because virtually anything you do is based on your credit. Buying a home, buying a car, and even getting your car insurance will really be hard when you have a low credit score. So, known what makes it low will help you understand what life changes you may need to make, and what things you can do going forward to prevent this from happening again.

If you are paying your bills on time that is great, but you may have too many of them. Continuing to open new accounts will drive your score down, making it nearly impossible for you to balance out your debt to income ratio. You also need to keep in mind that the more of your credit you use, the more your payments will go up with your revolving accounts. With a mortgage and a car loan things work a little differently, as they are a fixed interest loan. A fixed interest loan means that you will have the same rate and same payments for the life of your loan. Revolving debt pertains to credit cards, or lines of credit on the home. The rates adjust with the prime rate and any additional add-ons the bank has, thus driving up your payment. Once you exceed 40% of your available credit on any account, this will give you a low credit score. It shows the lender or bank that you are not able to manage your credit or that you are planning to use more credit, so beware.

Paying your bills on time is great, but remember cash is king! Don't borrow anymore than you need to no matter what the case may be. Always try to go the way of paying cash, for the exception of your home mortgage. Pay cash for cars if you can't, but if you can't this is a new trade line or account that you can use to help build your credit up. Building your credit up and sticking to your guns on cash will keep you away from a low credit score. For more information on credit, and how you can improve your situation, please go to www.fhaloansnow.net.