Bad credit is expensive
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Credit scoring, demystified
| The problem|
Angel has a problem common to many young professionals. She is in the market to buy her first home, but her low credit score has been a big hindrance in obtaining conventional financing. Not only that but Angel has relatively little personal savings, and she has a problem with budgeting for her expenses. "I tend to spend whatever I have at the moment," she says.
Angel believes that she will continue to earn a good living and she has planned to pay for her wedding with cash. She believes she can look forward to substantial earnings gains over her career. But right now she is pinched in her finances, and a few issues after college have damaged her credit score.
While she is not sure how she got in this position, what she does know is that just starting out in her new life, she has $12,000 of high-interest credit card debt spread out over four credit cards. This debt is about 75 percent of her credit limit. She is currently paying high rates because her credit score has not qualified her for preferred rates. In fact, three of the cards have rates of over 25 percent. This is her only current debt, as she does not have a car loan.
This report was prepared by Chartered Financial Analyst William Z. Suplee, CFP, CASL, ChFC.
|A low credit score limits her mortgage-financing options.|
|No emergency savings.|
|Does not live on a written budget. Spends as she wants.|
|$12,000 in credit card debt over four cards.|
|Paying penalty-type interest rates of more than 25 percent on three cards.|
|Credit card debt balance is already at 75 percent of her limit.|
|Several recent late payments on credit cards.|