Do Credit Companies Have a Responsibility to Tell People the Facts about Debt?

Have you ever considered the question: Do you have too much credit available? For many people, the pursuit of additional lines of credit is perceived as a safe option. The age-old aphorism: Too much of a good thing is a bad thing holds true with excess credit lines, on the proviso that you are reckless with your credit. The case can certainly be made for greater credit availability, provided it is managed responsibly. When you contemplate the concept of too much credit, your mind probably wanders towards credit card debt, student loans, auto loans, mortgages, store credit accounts, and the like.

Responsible credit management is the key to effective debt control. Believe it or not, people with the best credit are not necessarily those with the largest credit lines available to them. A person who has a smaller credit line, with smaller overall credit utilization may have a better credit score than somebody with a huge credit line and too much credit usage. In the United States, a new model for determining credit scores will be coming out later in 2017. This credit scoring model will be released by VantageScore Solutions, and tongues are already wagging about what it encompasses. The new system is built on artificial intelligence algorithms, to derive accurate credit scoring data for customers with little or no credit.

This new credit scoring model takes a long and hard look at your credit history over time, incorporating the most important behavioral characteristic of all:bad debts trended data. This differs dramatically from the current scoring models which take a snapshot of your credit at this juncture. If you have good credit, your credit score will be revised upwards by as much as 20%. And more good news is in store with the VantageScore Solutions model: public data such as tax liens, civil judgments, medical collections and any negative reporting will likely be removed from your credit file. This is going to dramatically boost the credit scores of people across the board. This new model is substantially more predictive than previous models, and can generate 30% more accuracy with people who have limited or zero credit accounts.

How bad is debt?

Some financial advisors claim that debt is a necessary evil, while others eschew it completely. You likely already have debt in the form of student loans, a mortgage, credit card bills, medical bills, store accounts, automobile loans and the like. Provided debt is managed effectively, it is not necessarily bad. However, the specific type of debt you have is important. Your credit utilization, installment loan values, and the number of accounts with debt owing will all affect your credit score. While debt is often ‘needed’, debt should always be managed well. As a rule, it’s important to pay down your most expensive debt as quickly as possible. The reason for this is simple: higher interest-related repayments on credit card debt and payday loans will eat into your disposable income.

Of course, responsible credit companies can sit with you and work out a debt repayment plan that suits your pocket. You may find that debt consolidation for outstanding credit card bills is the best way to go, or you may decide to allocate more of your personal disposable income towards debt reduction. In any event, your focus should be on the most exigent debt repayments. Your credit score should be protected at all times, but not to your detriment. Provided you are making the installment repayments on your student loans, personal loans or business loans, your credit score will not reflect badly. Be advised that your income levels are not factored into the calculation of your credit score so it doesn’t matter what you earn – it matters that you’re paying your debts on time.

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