In today’s modern world, society is thoroughly dependent on using credit to make purchases. Nowadays, having a good credit score is used for more than just getting a credit card or a loan. An increasing number of companies and businesses are endorsing credit worthiness as a pre-requisite before they offer any products or services to you. Credit scores can be crucial in determining a borrower’s risk and may also be used to set insurance rates, obtain rental property, and even sort out job candidates. A number of different industry advice groups have popped up which make a good living telling the average consumer how to handle their credit and stay out of debt. They also counsel the customer on how to raise your credit scores back up when they do go into debt.
Over the course of the past couple of years, the IRS has audited 63 credit counseling agencies, which account for over half of the revenue in that industry. 41 of these audits representing more than 40% of the revenue in the industry have been successfully completed. It is interesting to note that all of the completed audits have resulted in proposed revocation or other termination of the tax-exempt status granted to these entities. So it is advisable to be wary in getting advice regarding your credit counseling because having good credit is essential for owning a house, renting a place to live, having insurance or finding a job. In 1980, the federal government enacted a law that allowed national banks to ignore state usury limits and increase the rate of interest at a certain number of points above the Federal Reserve discount rate. Additionally, chartered organizations like small loan companies have their own rules to abide by.
Congress modified this law in 2010 but did not significantly address the problem of usury in the old law. However, the changes do require the banks to give you a 45 day notice prior to changing your interest rate. It means the laws enacted in most states are not strong enough to regulate credit card debt. Therefore, in the majority of cases, the only way a person can relieve themselves from exorbitant debt to various banking institutions is through filing either a Chapter 7 or a Chapter 13 bankruptcy. An example of this modification may be where you owe $30,000 in credit card debt before the new law went into effect and your card company raised your APR over 24% which is the maximum allowed by the old laws. This was the case for many Americans who had been making the minimum payments, normally around 2%, the new interest rate caused the principal to grow very rapidly at those usury rates.
However, as per the new law, the banks have to provide a 45 day notice before they can change the interest on any of the new cards you obtain. Maxing out on a credit card has a negative effect on your credit report and drastically lowers your credit score. Under those circumstances, when you pay the minimum, you can pay the $600 a month for the rest of your life and the principal on the card loans will only increase. Although it is highly important to have a good credit score, however credit card abuse is one of the worst causes leading up to bankruptcy. Therefore it is advisable to know how to balance out the worth of credit against the amount that you owe. The reasoning behind use of a credit cards is generally to make ends meet until the times get better and that’s why people pay the minimum payments in the form of interests on the card. If that is the case, then you should recognize that you are in financial trouble even to the point of being bankrupt.
As a general rule of thumb, a person is considered to be legally financially bankrupt if their current sustainable income does not pay all of their living expenses, doesn’t pay interest on outstanding loans, while reducing the principal on those loans during the pendency of the payments. As society continues to foster dependency on credit card usage and credit reports to make purchases and decisions, credit worthiness has become almost a pre-requisite to succeed. Below is a summary of how having good credit or not may impact our lives in today’s society:
Impact On Place Of Residence And Living Expenses
Mortgage lenders often carry out a credit check prior to approving or denying your mortgage application because they want to assure themselves that you will not default on a mortgage. Not having a good credit score can make someone seem like a risky proposition for a mortgage loan. Your credit score directly impacts the interest rate of your mortgage which then impacts your monthly mortgage payment. So even if your mortgage loan is approved, having bad credit could mean having to pay a higher mortgage payment. When someone is looking to rent a place, the potential landlords run a credit check to determine whether to rent out to you or not. Not having good credit could be the reason that you get denied on renting out an apartment or a home.
Impact On Car And Car Payments
If someone doesn’t have enough cash on hand to buy a car, they are going to need to get a car loan. Your credit score determines whether you qualify for a car loan or not. It also helps to determine the amount and the interest rate of the loan. Typically people with good credit scores may qualify for large loan amounts with lower interest rates. However, a poor credit score often limits your options as fewer lenders will be willing to work with you and the ones that do will charge you exorbitant interest rates.
Impact On Employment Prospects
Potential employers run credit checks as a part of the hiring process. Having a poor credit report is construed as lack of financial responsibility and thereby could deter a prospective employer from hiring you. The employer may believe that your debt is too high for the amount of salary being offered or employers could check credit scores prior to giving promotions or a raise especially for financial-related positions.
Impact On Monthly Expenses
Many people are unaware that a good credit score is needed to establish utility service. Utility providers such as electric companies usually check to see if you have good credit prior to turning on your electricity. This practice applies to almost all utility services including cable, telephone, water, and cell phone.
Although your credit score is determined by the manner in which you have paid your bills, businesses, landlords, mortgage lenders, utility providers, and employers also use your credit score as a means to predict your future financial practices. Therefore whenever you need a loan or services, your credit score is scrutinized. This is why maintaining good credit is so important otherwise it leads to bankruptcy. If a person is considered to be bankrupt, then common sense indicates that they retain the services of a bankruptcy lawyer in order to figure out how complex bankruptcy laws may apply in their situation.
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