A good credit score is crucial for not only obtaining credit with getting a good interest rate when you do. Many consumers find difficult to purchase a home or lease an automobile when they have poor credit but they may not understand what they need to do to boost their credit score. Once they take steps to repair the credit they also need to know the difference between great credit, good credit and below-average credit. Knowing the differences is fundamental to taking advantage of financial tools which are available consumers.
Consumers with the best credit are able to get loans to purchase investment properties, signature loans for large amounts from their banks or credit unions and generally anything they want financially. Financial institutions consider those with excellent credit to be near risk-free borrowers.
Those individuals with good credit are able to purchase first time homes on reasonable terms such as minimum down at average or slightly better interest rates. It is also unlikely they will be declined when seeking an auto loan or most other common types of personal loans.
If you have an average credit score you may still be able to obtain a mortgage or auto loan but it will likely be an above average interest rate. The amount you qualify for a loan will also probably be lower leading to used car purchases in smaller types of financing amounts.
Having poor credit doesn't rule you out of obtaining an auto loan but it does mean you no longer have a position to negotiate terms. Interest rates are likely to be high with additional finance charges and fees and low flexibility. At this point the consumer should be taking steps to improve their credit by removing black marks, making payments on time and lowering their credit utilization ratio.
For consumers with bad credit it is highly unlikely they will able to obtain a mortgage and interest rates on auto loans are likely to be double industry standards. Bad credit normally involves personal liens, legal judgments and credit card charge-offs which are already flags to potential lenders.
A FICO credit score of less than 500 especially rules a consumer out of obtaining any type of loan of credit. Lenders will be unwilling to assume the risk involved for loaning money to an individual with this type of credit score. Personal bankruptcies and foreclosures often result in some 500 credit scores. Even if obtaining a loan is possible the interest rate is bound to be exorbitant in financially counterproductive. Seeking credit counseling and other guidance is highly recommended in these situations.
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