Credit Rating Scores Explained

The Science behind Credit Rating Score

Summary: If not for the influence of credit scores to everyday life most consumers would leave credit rating scores to rot.

In the story 'The Island', persons are known by technical names such as Lincoln Six-Echo or Jordan Two-Delta. Those names are not just random scientific mush, they represent something more. What if this sci-fi scenario happens in reality? What names shall we be referred with? If you know what the banking jargon is now, you'll know what I'm talking about.

When credit rating score erupted to the masses in the '80s, it was received in an equal state of delight and distress. While credit rating score has its share of boons, it is also accompanied with substantial bane. The upper class greatly benefit with readily accessible loans, but the credit rating score hit hard on folks in the middle to lower class levels. How?

One answer is probably the mechanics needed to keep a credit rating score healthy. One such is the 35% credit line maintenance. Though there's no ill if you were to spend your credit to its limit, an over 35% credit account balance is considered unwise credit handling, therefore lowers your credit rating score significantly. This is where most people fail, because limiting the credit spending to a nil 35% is like using only a portion of your wardrobe for your belongings. The other 65% you leave empty. For tight budgeted households, 35% is just plain impossible.

Perhaps the biggest hit for credit rating score is how it contradicts debt consolidation. As we all know, merging your debts in to one account is always constructive since you can have also a consolidated interest thus a smaller interest to pay (also tax deductible for equity loans). That is as long you consolidate your debt without exceeding the 35% limit, you're fine. But what about those multiple bills that would surely exceed the 35%. Would you forgo on a smaller interest plan? Whose hatchet would it be?

How about closing a number of open accounts? Or consolidating debts into one account? -No, no- says the bank, especially if your account is reaching the 35% mark. Simply put -don't you ever close those running credit accounts because they have a negative impact on credit rating scores. This policy has no repercussions whatsoever unless you use your accounts again. But then again, if you have standing balances on every account, you would want to consolidate them into one account which would take us back to the 35% credit maintenance.

If not for the influence of credit scores to everyday life most consumers would leave credit rating scores to rot. But no, credit scores are used virtually everywhere. Seeking for an apartment or condo? Be sure to procure a copy of your credit rating scores, because the landlord will be checking on that. So will the cable provider, and the electrician for that matter. Even employers tap on credit rating score to evaluate potential employee for worthiness, never mind education and experience.