How much does bad credit cost you?

The Cost of Credit

You didn’t think using credit was free, did you?

Depending on the terms and conditions you agree to, your overall cost of using credit can be very expensive in the long run.

Credit card companies are for-profit, shareholder driven organizations whose goal is to earn maximum profits. But having the knowledge and skill to use the card as a credit tool instead of letting the card make a tool out of you is critical when your scores and interest rates on larger purchases are calculated.

Many credit cards models are designed to never be paid off -- they intend to keep accruing interest and late fees from consumers who do not have the funds to pay down what they borrowed. Usually, consumers making only the minimum payment on a credit card balance will take over 20 -30 years to pay off that debt!

Better Credit = Better Interest Rates = Much More $ Than You Thought

When you go to buy a house, a single point of interest difference on, for example, a $250,000 home saves you $63,000 over the life of a 30-year fixed mortgage. The same ratio holds true on auto loans, home owners' insurance, and a host of other prices calculated based on interest rates.

Using Your Credit

With any trade line, never spend over 50% of the limit or you’ll be reporting negatively. Under 30% is the best practice. The closer you are to 0-15%, that is where your maximum amount of points are obtained. Don’t pay down the card to $0.00, however, because you may accidentally trigger a ‘dormant account’ notice in the algorithms…that may result in a trade line being closed for inactivity.If its closed, it pulls all the value built into the account history length out of the algorithm. Make sure you are using the card (albeit with small amounts charged) semi-frequently and at least once every three months to avoid the dormant account and having it closed.

Ideally, you should have three revolving trade lines for every one installment loan. One way to get that ratio is to begin building your unsecured credit lines and increasing the amounts available to you over time. Don't rush it, though -- there is no silver-bullet overnight fix to building better credit.

Cleaning Your Credit

A national credit restoration company like White, Jacobs & Associates can do wonders for cleaning up your credit report. While you can do a simple dispute process on your own, the paperwork you receive back can be overwhelming in both volume and content. WJA has attorneys on staff and a research and processing team 30 people deep that go through all of the information from the accuracy audits sent pursuant to the federal consumer protection statutes and customize your next round of communication in an attempt to remove all derogatory items that are either reporting inaccurately or that cannot validate the debt through their record-keeping within a 30 day period.

Removing derogatory items, using the credit you currently have as a credit tool to boost scores, and building new credit are all critical components of counteracting the cost of bad credit.

Your clients (with credit problems) will appreciate you going above and beyond to help them get a home.

Tyler Gregory

Professional Credit Analyst

972-914-5428