THE WORST CREDIT SCORE!
In this society, we all understand the importance of having a great credit score. The ranges of credit scores go roughly from “horrible” of about 400 to “fantastic” of about 850. This scoring system is determined by both our ability to pay and prior history of paying our debt obligations.
If you have a great credit score, a score of about 720 or more, you pretty much get all you want when it comes to financing. This means you will be approved by most banks and get the preferred rates on auto and home loans thus saving thousands in interest over those who have lower scores.
There are other advantages of a high credit score as well. Some states will rate your premiums on car insurance based on your score and some job opportunities can only be had with a good score.
Of course, if you are competitive, a good score can also boost your ego and your confidence.
There are many factors that can affect your score such as paying bills late or on time, the amount of outstanding credit and even applying for credit. Simple things like not applying for department store credit cards or not exceeding your credit limits on cards can help boost your score tremendously. Of course, the contrary, like over use of credit and not paying bills on time, can make a good score go bad fast.
We all understand the benefits of a good score, but did you know that there are benefits to a low score as well? Before I go into this, I want to be sure you understand that I am not telling you wreck your credit score. This is just some good news for those who have gotten themselves in credit trouble.
With a low score, typically under 580, you have the power to negotiate debts. That’s right, when your score is low; the lenders feel that they are less likely to ever be able to recover anything from you. They fear you may file bankruptcy or just not care to pay them. They still sound like bullies on the phone when they are trying to collect, but if you have a low score be sure to realize you have power over them.
I remember awhile back; a debt collector was looking for money for some credit card machine I had in a store from years back. I had sold the store and assigned the payment to the new owners, who stop paying after they closed the store. Anyway, after trying to argue the debt away and then trying to negotiate the debt, the bill collector said something like, “Hey you have a good credit score, and we are going to put a judgment against you if you don’t pay. You aren’t like most of the people we try to collect and negotiate with, you are going to pay this because your score is too good”. That was when I realized the power of having a low score. Basically, he stated that the people who have lower scores have power to negotiate. Once again, be assured that I wasn’t going to trash my score for a $500 debt, but I filed away the statement and paid the $500 and kept my score in the 720’s, at that time (for those of you who have read my book, you know this isn’t my score now).
Now that you understand the power of a great score like 720 or more and the power of a low score like 580 or below, I will tell you that the worst score to have is about 620.
620, you ask? Let me explain;
As you know, paying your debts on time and meeting obligations will boost your score. That means if you have a 620 score and you do the right things, it will go up to 700 plus in no time. On the contrary, if you don’t meet your obligations or dig too deep in financial hole, your score will reach 580 or below just as quickly. So why is 620 the worst score? Simply because you can’t get preferred rates and you can’t negotiate your debts as easily. It is right in the middle and the next move will determine if your score goes up or down. If you don’t pay the bill collector bills, it goes down. If you want a loan, you pay a higher rate.
Finally, don’t despair if your score is in a low. With time and responsibility, you will have a 700+ score. Even after bankruptcy, most people can build their scores back in the high 600’s within 2 years and over 700 within 5 years.
I hope you understand the point of this blog and I hope you will continue to build your credit score.
For financial coaching, see me at www.larrysteinhouse.com
Larry Steinhouse – Author – Money Coach – Real Estate Entrepreneur – Stock Options Trader