December 14, 2016
More and more users of credit feel that lenders ought to reward them for their credit history. In most cases, people that feel this way have worked hard to establish a better credit record and were sure to pay their bills on time. The reward that they are looking for is a lower interest rate on loans.
A survey was given to find out what people felt about this matter. The results indicated that about 75 percent felt like they should be rewarded with lower rates if they had a track record of paying their bills on time and carried either low or no debt.
Lenders will typically look at an applicant’s credit score to determine their credit-worthiness before giving out a new loan. A credit score is indicative of your credit history. The two largest factors that determine your score is your consistency in paying your bills on time, and also your debt-to-income ratio, where it is better to have lower amounts of debt.
When an applicant has a high credit score, lenders look favourably at this and are more likely to lend money. It generally reveals that the individual is more responsible with their money and are more likely to pay it back.
When applicants with a low or poor credit score apply for a loan, a lender will usually either reject the application outright, or they may grant the loan but with a higher interest rate. In a sense, they are punishing those who have bad credit and actually making it a little harder for them to dig themselves out of the hole they are in.
Those with higher credit scores are usually given better interest rates, and often a higher borrowing limit. However, it might be a better system to reward those with the highest scores with an even better rate. Instead, there is no such recognition. What is generally done is that everyone with a good score receives about the same rate.
A system that rewards those with better credit could help those with less than ideal credit. If they were rewarded for improving their credit score even during the course of the loan this would tend to encourage them further to improve it that much more.
Many people in the younger generations indicated in the survey that they prefer to be rewarded for having a better credit score. Part of the reason for this is that they are often exposed to having lower credit scores because their lives are not that stable yet. They often go from one job to another, and many do not yet have good control over their credit cards.
After 2014, Australian banks and financial institutions started collecting more information about everyone in order to provide a better picture of how they handle money. This means that there is a much broader base of information for them to rank you, and it is now even less tolerant of those who are careless with their finances. Unfortunately, this also punishes those who have run into financial trouble not of their own doing in some cases.
While many people would love to see lower rates because of well-managed debt and money, it is entirely up to the lenders to consider such a radical move. Interest rates have already started to move upwards on home loans, whether for refinancing or new, and it is quite likely that they will all soon move their rates upward across the board.
Written by Refinancing.com.au
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