Loan Blogger

Why Are Credit Score So Important?

I’ve lived through several recessions and one thing I have learned is that the economic structure of our society is about supply and demand. Look at your own life, your daily activities and examine how the theory of supply and demand affects you.

Take milk for instance. If your local grocery store is closed or runs out of stock , you will drive to a smaller store if it is convenient. Local neighborhood markets usually are more expensive, but they rely on convenience as a way of staying in business.

The same is true just about everything else in life, including money and credit. If money is rolling freely, then it will cost less. Interest rates will stay low when money is abundant and because of the demand for money, prices for things like the cost of a home will be higher.

Credit operates in the same manner. If everybody wants credit, the lenders will recognize this and in an attempt to move product, aka loans, money will flow freely.  It wasn’t that long ago when money was easy to get. Anybody, including my ten year old dog , was getting offers from the credit card companies . Banks were reaping huge rewards with all this business . This is before Congress handcuffed them in with the Credit Card Act.

When the economic shift occurs , when supply and demand is skewed like it is today , this is the time to regroup. This is the time to get real about your finances . Time to squirrel away money and to let go of assets that are not carrying their own weight. This is also the time to work on credit report repair. If you want to take advantage of the next economic boom, you have to be quick with good credit report scores.

How To Repair Bad Credit

Bad credit and low credit scores will forestall you from buying a house and it will cost you a whole bunch in terms of higher interest rates. Also,if you are financing your lifestyle with credit cards, consider that credit card balances are amortized on a daily basis. Unlike a payment you make on your house or  automobile, credit card balances have interest charged to the balance every day.

You have to get rid of credit card debt and this may mean that you have to settle, a lump sum payment to the lender. This idea of credit card forgiveness  is nothing new and it does carry with it some penalties you may not like .

You will be required to pay taxes on any forgiven amount. Be ready to receive a 1099 listing the forgiven amount you received as a gift. The IRS will want to see this as income and will want from you income tax you normally pay.

Your credit is going to take a hit, but eliminating this debt will also increase my credit score. This is because the outstanding balance will no longer be listed and reducing balances is normally positive. This is both good and bad. Make sure you get copies of your credit report and follow up to see that the account is being reported the right way, as settled.