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How a Credit Score Downgrade Impacts Your Life

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How a Credit Score Downgrade Impacts Your Life

By Marco Carbajo, Guest Blogger
Published: December 27, 2011 Updated: May 30, 2012

Why do credit ratings play such an essential role in our everyday lives?

Credit ratings are essential because they indicate how likely an individual, a business, a city, a county, a state, or even a country is able to repay a debt. Each one of these entities has a credit rating and depending on positive or negative factors, a rating can be upgraded or downgraded.

For example, the U.S. had always maintained a top tier AAA credit rating. But recently, one of the major credit-rating agencies, Standard & Poor, downgraded our country’s credit rating for the first time.

As a result, America’s cost of borrowing increased by billions of dollars per year, which inevitably impacts consumers through higher interest rates and borrowing costs.

It’s no secret that failing to address our long-term debt triggered America’s downgrade, according to S&P. While our country still has a very strong AA+ credit rating, this historic move has impacted our country significantly. 

As consumers, we have our own personal credit ratings to be concerned about. A downgrade of our personal credit scores can impact our lives tremendously.

In particular, FICO® scores are the most widely used credit ratings in the world. It is recognized as the standard measure of consumer credit risk among lenders and creditors. The FICO® score is a three digit number that ranges from 300-850. A score of 725+ considered the starting point for excellent credit risks.

A score is calculated each time it is requested by you or a lender. And each time it is calculated, it incorporates the information that is on your credit report at that time. So, any negative changes to your reports can trigger a downgrade.

How much your score changes depends by a variety of factors such as missing a payment, incurring excessive debts, filing for bankruptcy, excessive inquiries, etc.

Here are some examples of how a credit rating downgrade can impact your life:

  1. Expect to pay 20-30% more in premiums for car insurance.
  2. Interest rates for personal loans can be between 17-26%.
  3. Over 70% of major companies will check your credit rating as part of employment screening. A downgrade can impact your chances of obtaining a job.
  4. It can prevent you from obtaining housing since many rental property owners check credit ratings during the tenant screening process.
  5. You may be required to pay a deposit when opening an account for utility services.
  6. It can prevent you from getting a student loan.
  7. With a credit rating downgrade, you may be denied for a regular cell phone contract and be required to use a pay-as-you-go agreement.

As you can see, downgraded credit scores affect you in more ways than one. However, there are steps you can take to recover and improve your scores.

First, get a copy of your free annual credit reports from each of the major consumer credit agencies. Secondly, review your reports and initiate a dispute if you uncover any inaccuracies.

Finally, begin rebuilding your credit reports and review the booklet “Understanding Your FICO® score” to get a better knowledge of the credit scoring process.

Don’t get discouraged. You can reclaim your solid credit ratings as long as you take the necessary steps and put the time and energy required to make it happen.

Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources.

About the Author:

Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.

Comments:

Very often, we see negative credit adversely affecting renters who are denied the opportunity to lease a property because of too many deliquent and/or collection accounts uncovered in the tenant credit check. Due to their tenant screening standards, many landlords will not accept rental applicants with anything less than a FICO score of 650. Although I would argue that there are some very good renters that can be found with lower scores. Some of these can include those who have recently filed bankruptcy, who truly deserve to have a fresh start. Often, these kind of tenants are especially careful about diligently paying their rent on time each month because they are trying very hard to rebuild their credit history. The best advise that we can offer on the topic of tenant credit for renters would be to do everything possible to avoid getting judgments and evictions. These are especially negative factors according to many landlords who specially search for these records, and when found, it can very often automatic rejection. Some landlords don't even run credit reports on their potential tenants, and simply opt for obtaining an online background check, which will also reveal these items because they are a matter of public record found in the courts. Surprisingly, evictions will typically not appear in credit reports unless they are accompanied with a judgment. We see many evictions without judgments.
It really does down grade your life when your credit gets downgraded. But hey, be wise with your spending habits and you dont have to face a credit downgrade.
This article brings up a lot of good points. There were some statistics just released illustrating the average FICO score in America is 691 (FICO) and around 2% of undergraduate students have no credit history. This is obviously an issue in our economy that needs attention. Everyone is always worried about getting a loan and using their credit, which ultimately leads to having debt. Having good credit should be the focus. Then if you need to use your credit responsibly, you will know how to do so. Basic education is what people need!
For those who have a bad credit score and are trying to find means through which rebuilding credit is possible, the truth is that it will not be clean or easy. Loans and standard credit cards won't be a choice, but secured charge cards might. Regardless of high interest rates and the need for collateral, they can help you repair credit slowly - so long are you are willing to offer collateral up front and pay hefty charges for the privilege of banks reporting your made payments to the credit reporting agencies.
Most people don't realize how have a bad credit score can dramatically impact their lives. To making higher down payments to not getting approved for loans, the list goes on. Having a great credit score is critical because you never know when you will need to use it to your advantage.
In the end credit score is something the individuals can't escape. It increase and decrease all the time. It is important to us to pay our credit each month and try to reduce our outstanding debits ASAP.
Wow, I did know that personal credit score had such impact on various interest rates, but that's the first time I hear that country credit score plays such role too.
Let's better say it impacts our business. All small businesses need loans from time to time and if you have a bad score, you will be a huge interest rate and that can simply drive you out of the business.
Credit reports often contain misinformation. Do your research and many times you will be able to fight the ding on your report successfully by asking the credit reporting agency to prove the ding on your report. Not just the fact the creditor reported you, but actually prove the event took place. They have 30 days to prove this or they are normally obligated to remove the item. Always get your credit report clear at least 60 days before you need to have someone check it. You will be amazed on what you can get removed - including foreclosures and other serious credit defects. s.
Having a good credit and knowing its significance is really an essential act. Since it can affect future transactions if one chosen to invest in any kind of business it will certainly reflect its financial background. Good to know that there is reliable company (FICO® score) where you can check credit ratings that is widely used all over the world. Homes in the Philippines

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