Introduction: A smart looking piece of plastic. The size or appearance does not matter here. What matters is the power it carries. The power of right royally dining out in your most favorite joint with no hard cash on hand or lowest balance in the bank, the power of ordering anything from the cyberspace imprisoned in your home and the power of swiping it around in any outlets you desire. As is usual with power you can either use it or abuse it. Abuse of power lands you with a bad credit plastic that can make you a liability to the banks and deprive you of many necessary credit facilities.
Credit Card Defaulters: The abuse of plastic money leads to an ever increasing number of credit card defaulters with bad credit record. According to a study conducted by India Co-operation Committee (I.C.C.) comprising of Master card issuers of the country there were more than 650,000 registered defaulters in India that is likely to be 1 million with more banks joining the I.C.C. A Korean study also reveals a jump in the number of defaulters in the past few months. Another clear example is provided by an Ohio study of credit card defaulters who have an average credit card balance of $3,093 compared to $1,967 for others.
The Pitfalls: Temptations to eat drink and shop endlessly due to immense power of plastic money. The endless offers leading you to more and more of personal loans to clear off heavy balances. The soothing balance transfers that never cease. Falling invariably into the trap of revolving credit with high rate of interest amounting to 41.75% annually including the equally high service charges (12.24% in India.). What is considered bad credit? Here are some general guidelines you can use to determine whether you may need to speak to a mortgage credit specialist.
• A F.I.C.O .score of 620 or lower
• Two (or more) 30 day late payments in the past 12 months
• One or more 60 day late payments in the past 24 months
• A foreclosure in the past 24 months
• A charge off in the past 24 months
• A bankruptcy in the last 60 months
• A qualifying debt-to-income ratios of 50% or higher Remember that your creditworthiness is not based only on credit scores. You may still qualify for a great deal on a mortgage even if you have paid some debts late. The only way to know for certain is to speak with a professional mortgage credit specialist.
How is your credit score determined? There are several factors that play a role establishing a person's credit score. The five criteria that refer strictly to your financial history include:
1. Your payments on credit cards, retail accounts and loans and mortgages.
These make up 35% of your score.
2. Amounts owed. 30% of your score is determined by how much of the total credit line is owed on credit cards and other revolving credit accounts (accounts that carry a balance).
3. The length of your credit history. It makes up 15% of your score.
4. For how much new credit you apply. Applying for too much is an easy way to harm your credit score. New credit applied for is figured into your score at 10%. The mix of types of credit you owe.
5. What is the balance on your credit cards, what do you owe on mortgages, installment loans etc.?
About 10% of American people have a credit score of 800 or higher, the average is 710 points and about 10% of the population has a credit score of 575 or less. Above 730, a credit score is considered excellent, above 700 is considered good. If you have a credit score between 670 and 699, lenders will take a closer look at your file before approving or denying: with a credit score between 585 and 669 it will be considered a higher risk to grant you a loan. Below 585 points, you might face problems trying to get a loan at all. With a credit score under 550, do not even try to get an auto loan, concentrate your efforts on improving your score first.
Apart from these criteria that take into account your past "financial behavior" there are other personal characteristics of yours that influence your credit score.
Anything that points towards you leading a stable life such as living in the same location for a long time, working for the same employer for several years or owning a home will increase your potential credit score.
The credit score is supposed to help a lender determine whether if given a loan you would pay it back within its term. If your life shows stability this is considered.
Crime and Punishment: You have committed a crime by falling into bad credit and so you must suffer the punishment. The earliest irritants will be unpleasant phone calls asking you to make the payments. And, if you still falter the goons of the banks may come knocking on your door on a fine morning. In India this has been a raging controversy with mostly private banks justifying their tactics on recovering money overdue and cardholders asking for protection.
Then to be on with your punishment recipe all the offers will stop coming your way. You may be deprived of much needed home loans and even car loans. As we have said earlier you may have to go for mortgage loan if you own something of value.
Improve Your Credit Rating: All is not lost as yet. While there is online help available for bad credit credit card holders in terms of unsecured credit cards and home loans that ask you the full financial background what you must do is to improve your credit score to above 700 points. You must curb your natural instincts for enjoying life your way.
You must learn to live within your purchasing power. As specialists will tell you your credit card dues should never rise above 30% of your available credit limit. You must not go for multiple accounts. Use the power of plastic money to your benefit and never allow a plastic baddie to ruin your life.
Chinmay Chakravarty is a professional specialized in the creative field with over two decades of experience in journalistic writing, media co-ordination, film script writing, film dubbing, film & video making, management of international film festivals and editing of books & journals. Started career with a stint as a freelance journalist and then joining Indian Information Service. Employed by the Ministry of Information & Broadcasting, Govt. of India, worked at Films Division, Mumbai as Sr. Commentary Writer from 1987 to October, 2006. Presently working in Mumbai Doordarshan, TV channel of Govt. Of India, as a News Editor
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