As a report on your financial reputation your credit score is used by countless bad credit lenders to determine approval for various instruments ranging from loans to credit cards. With the recent credit implosion, economic downturn, and real estate market bust the bad credit lenders will be forced to adjust what is considered a good credit score for approval, helping consumers get approved.
Your consumer credit score is simply an assessment of your reported financial history and your credit is a subjective number used by lenders to determine your credit worthiness. The unintended consequence of the credit and economic implosion is a statistically increasing number of American households with negative marks on their credit reports. Foreclosures, bankruptcies, late payments due to job loss or crushing debt has left many good credit holders suddenly finding themselves with bad credit status.
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So how will this affect the market, and what behavior can we expect from lenders in the future? The good news is this ultimately will benefit the consumer. As credit availability increases and the economy turns, lenders will again be in a situation of high competition for potential borrowers. When the tide has turned these lenders will be forced to assess the credit worthiness of their bad credit applicants and will find themselves with a much smaller pool of good credit applicants to lend to. This will force adjustments on the good credit lenders to meet their demands for customers to lend money to as well as the bad credit lenders.
Reversely, credit will become more important than ever. With lower standards because of less availability of good credit borrowers, lenders, as is customary will begin offering more benefits and better terms to the few remaining low risk good credit borrowers. This will lead to lower interest rates, incentive programs, better payoff periods and other perks that can really save you money on your future loans.
So how to best prepare for the direction the loan industry is headed? The wise advice remains the same. Actively work to improve your credit score if you are in a situation to do so, as the benefits make fiscal sense, avoid bad credit decisions if at all possible, and don't beat yourself up if you have had some financial missteps lately, you are not alone. As personal finance times go, this is a time to pick yourself up, dust yourself off, and move forward.
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