Bad Credit Has Far Reaching Consequencies
A lot of borrowers have woken up to the dangers of having financed their homes with ARM's that have entered their first periods of adjustment or which will do so soon. The biggest problem is that while they are aware that they should try to refinance their ARM's to a fixed rate mortgage, bad credit may make it hard to refinance or at the very least add to the cost of doing so.
Bad credit as rated by the credit reporting agencies results from a number of causes. One of the most important among these is your history of repaying obligations when due. All late payments, repossessions, disputed bills, foreclosures and bankruptcies are reported and will stay with you for varying periods of time. The other primary factors used to rate your credit history is the ratio of your total debt to income, the value of pledged collateral to outstanding loan balances (your home equity for instance) and the total amount of debt you have entered in to. Also factored in to this equation is recent patterns of borrowing and the amount of unsecured debt to the total debt you have outstanding.
Another difficulty consumers run in to is that if you make an inquiry about a possible loan or mortgage, that fact will be recorded and given a weighting in the overall evaluation of your creditworthiness. Frequent applications for credit cards and swapping among cards to lower rates of interest are all frowned on by the agencies.
Since primary borrowing, repayment patterns and adverse events like foreclosures and repossessions are all considered significant for varying periods of time (bankruptcy 7 years), it is difficult for the borrower to shrug off a report of bad credit habits. In a period of tightening credit such as the one we are facing at this time, a determination that you are a bad credit risk is not only hard to overcome but tends to snowball as you apply for loan assistance and fail to obtain it. Each new attempt worsens your profile until you are well nigh unable to borrow at any price. Unfortunately this was not the case in the recent past when sub prime loans were being made despite poor credit ratings and everything appeared solvable by adding a point her and there to offset risk. The lending officers that practiced this type of lending are no longer employed in the field.
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