Feb 19, 2013 Sean Albert
Consumers can make many financial decisions that would have adverse effects on their credit scores. For instance, failure to keep up with student loan repayments, allowing over-spenders to be secondary users on credit card accounts and rolling over debt from these plastic forms of payment are among the multitude of circumstances that can affect a score for years to come.
While rebuilding credit can take years, the immediate effects are also hurtful to both financing companies and consumers. For instance, if a would-be borrower tries to take out a loan but he or she has a substantially low score and poor credit history, an application denial is likely. This affects the consumer's personal finances, but it also means that lenders are loosing out on business. After all, they aren't likely to give out loans to those who they are not confident will make repayment.
Many similar businesses might have noticed this trend is slowly reversing, as recent reports revealed that subprime credit scores are actually rising into more positive standings once again. While many individuals are still reeling from the recession, they might find it somewhat easier to obtain loans.
Subprime scores on the decline
According to a recent index by Equifax, the number of credit scores under 620 fell by 2 percent in the third quarter of 2012. That said, the number is still relatively high. For example, the study found that although the Chicago area saw the biggest rise in credit scores that had previously been below 620, 1.5 million people in the city and surrounding suburbs still have scores below 619.
However, the same breakdown isn't true in every area. While the number of subprime scores is declining in 24 of the 25 metropolitan areas surveyed by Equifax, many consumers in Houston are still floundering.
What can lenders do to gain more business?
It is in a lender's best interest if consumers both need a little boost in cash and have good credit scores. The latter element is out of companies' control, however, but there is a relatively new tactic being taken by businesses across the nation.
Financing firms can suggest consumers use their Payment Reporting Builds Credit (PRBC) score when applying for loans. These ratings are created when utilities companies report a strong history of repayment to consumer credit bureaus, who then compile a score, which can often be a stronger indication of ability to repay loans. Not only can this greatly help consumers see the financial gains they need, but it can dissuade any fears lenders have about loaning to those who would otherwise be deemed risky.