Most of us would have been told often enough that we need to play by the rules if we want to have a good credit record. That is generally how it happens but the computation of credit scores isn’t actually that simple. A lot of seemingly harmless little monetary slips might unknowingly put us in the red in the eyes of those who matter – the creditors, and the results will not always be fair.
What is a Credit Score?
A credit score is a number that represents the creditworthiness of an individual. It is derived from the combined reports coming from credit bureaus. Essentially, it is supposed to determine whether a person can be considered a good risk when applying not only for loans in banks but also in renting homes or applying for utility installation or phone subscription.
Entrepreneurs with poor credit scores might not be able to open a new business because they can’t get their surety bond. Luckily there are surety bond agencies, such as Lance Surety Bonds, which have special bad credit programs for those in need.
The Big Surprise
Not a few people have gotten the shock of their lives upon learning of their low credit scores. A credit score below 640 will mean disapproval of loan applications or higher interest rates. The ideal credit score is 740 and above. What could have gone wrong in spite of the fact that some people who get low credit scores are into sound financial practices?
Possible Causes of Unfair Credit Rating
1. Incomplete Reporting
The problem with contents of most credit reports is that they only contain the negative side. It will report missed bills payment or a single delay in mortgage payment. Nowhere in the report will it be noted that aside from the one or two delayed payments, the person being rated is actually a diligent payer.
2. No Room to Qualify Negative Reports
A credit score is obtained without considering the reasons for missed or delayed payments. It will not care if you lost you job or if you got sick. You can probably contest the score if you knew about it. The problem is that a person usually gets to know about it when it is already needed which may be too late at least to serve the immediate needs.
3. Always Paying in Cash May Not Be Seen as Good
This is probably the most mind-boggling of all. After all, who should get punished by a low credit score in always paying in cash and incurring no debts? In computing credit scores however, there is a need to establish a good credit record. More specifically, this would be a record of how a person repays borrowed money.
The only positive side to this unjust credit score process is that credit bureaus are now looking into other indicators to come up with a more useful credit rating.