Nov 03, 2013 Sean Albert
There are so many financial things that consumers have to worry about every day, from how they're going to buy their lunches to whether or not they have enough money in the bank to cover a specific bill. Because we live in a society that seems to revolve primarily around money, fiscal responsibilities are something that worry individuals from all backgrounds.
However, one specific factor can instill fear in individuals more so than others - their consumer credit scores. These three-digit numbers can mean the difference between being given a loan that will be used to secure a home mortgage, car loan, credit card and a number of other things, or having an application declined. However, as many individuals across the United States know now that the Great Recession is over, this ranking is extremely easy to damage and it takes many years to gain solid footing once more.
A credit score is made up of many different factors, such as an individual's ability to pay off credit cards on time without rolling over the balance, his or her penchant for paying utilities bills late, how many lines of credit he or she has opened and even how many times he or she has looked into the status of the score. Because many individuals aren't sure about what goes into this compilation, they have the tendency to damage the number without realizing it until it's too late.
For many years, this figure has been looked at as an all or nothing statistic - either it's good or it's bad, and if it's the latter, chances are good that people won't be able to secure the financing they need. But ever since the financial tumult in 2008, that's no longer the case. A number of alternative credit companies now approve applications for borrowers with less than stellar scores, and it seems like other entities across the U.S. are beginning to follow suit.
So what does this mean for both consumers and the fiscal situation in America?
Mortgage brokers going easy on new homebuyers
Perhaps one of the biggest indicators that the economy is beginning to reflect the fact that many individuals don't have perfect finances anymore is that banks are relaxing mortgage premiums with more frequency now. It's becoming significantly easier for those who suffered in the last few years to secure the credit needed to invest in new homes.
According to MarketWatch, citing information from Ellie Mae, the average credit score of Americans has fallen by 18 points in the last year alone, prompting banks to shift their mortgage requirements. The news source said that the most common score being approved by banks for mortgages has also fallen - 32 percent of mortgage loans went to individuals with FICO scores of less than 700.
This is a strategy that corporations across many verticals might want to consider adopting. After all, if lenders, credit card companies and other entities don't loosen their borrowing standards, chances are good that eventually they're going to run out of clients.
Can take a toll on love lives
According to the Pittsburgh Post-Gazette, a recent study issued by the Federal Reserve Board revealed that credit scores can also have a lot of bearing on an individual's love life. The newspaper explained that there's a positive correlation between partners with vastly different credit scores and their likelihood for divorce.
However, all may not be lost. Luckily, there are so many different types of credit scores that two people in a relationship will likely have similar results in at least one or two of these models. They might want to begin looking into these possibilities outside the home as well - what if lenders and other credit-centric companies took these alternative rankings into account?
Other options still abound
Adopting relaxed approval practices is nothing new to many short term lenders and other alternative finance companies. For years, these have been the businesses that consumers with subpar credit turned to in order to secure money for necessary and often unexpected expenses.
These types of companies were able to approve many applications without putting themselves at too much risk by using a different system of judgment. For instance, a number of lenders have the flexibility to look at different credit scores - there are hundreds of variations, many of which can paint a more comprehensive picture of an individual's monetary history.
Take the Payment Reporting Builds Credit score, for example. Using this model, lenders can look more closely at potential borrowers' penchants for paying utilities bills on time, among other pieces of data, as opposed to just weighing the negatives against them. This way, the individual in question can show that he or she has been responsible in the past regarding repayment, which can be a good indicator that the lender will be recouped the money it lends out.