Bad
credit can increase the difficulty that a homeowner encounters when seeking a
home equity line of credit. Bad credit can be the reason for a poor credit
score.
What
is a credit score? The credit score varies between the values of 300 and 850.
The credit score is the creation of the Fair Isaac Corporation. Lenders who
arrange for a home equity line of credit use the credit score in order to set
the interest rate that will be charged the homeowner.
Homeowners
with a low credit score will need to pay higher interest payments. A score
above 700 is assurance of good interest rates. The credit score also serves as
an indicator of whether or not a lender should accept a homeowner’s application
for credit. Decisions on credit limits for the homeowner are likewise based on
the homeowner’s credit score.
The
credit score is a function of the homeowner’s past line of credit. In the U.S., three different
agencies keep a record of each consumer’s line of credit. Those agencies are
Experian, TransUnion and Equifax. If a homeowner with a low credit score wants
to raise that score, then the homeowner must contact each of those three
agencies.
The
effort to overcome a record of bad credit and to raise a credit score requires
the contesting of false claims that money is owed. If the homeowner can prove
that the claim for money is spurious then the homeowner has an opportunity to
raise his credit score. This action should be taken if the homeowner who plans
to seek a home equity line of credit has a score less than 640. Such a score
would be a sign of bad credit.
The
contesting of a credit score is not like a shot in the dark. A survey of credit
reports in the U.S. showed that 80% of such
reports contained mistakes. Thus, a homeowner could have good reason to
question the credit score that is being used to determine the interest rate on
a home equity line of credit.
The
credit score for a couple, a pair that are joint homeowners, is based on three
credit scores from the person with the most sizable income. This is the score
that the homeowner needs to make correct. Such correction may require a written
statement to each of the above-mentioned agencies. Those agencies will then
contact the homeowner and indicate if more information is necessary. If the
homeowner is lucky, then the credit score will be increased and the interest
rate for the desired home equity line of credit will be lowered.
Once
the homeowner has a good credit score then he will want to avoid slipping back
into that region of bad credit. This means that the homeowners must avoid the
sort of spending that carries them to the borders of their credit limits.
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