When it comes to managing everyday tasks and building plans for the future, credit is arguably one of the most useful assets for an average American. With the help of a good credit buying cars and homes becomes much easier for lots of people, let alone the possibility of saving a considerable amount of money yearly and paving the way to lower percentage rates. And there are even situations when credit is essential to get job and accommodation.
In this summary, we have decided to showcase some of the most successful best credit practices. Using the data from the credit report, conducted by the Council on Metro Economies and the New American City of the United States Conference of Mayors, we have referenced the average amount of mortgage, credit-card debt and student loan in 20 cities across the US. The Conference of Mayors of the United States on Metro Economies and the New American City promotes investment in US cities and the financial education of their inhabitants. The Council publishes its long-running series of US Metro economic reports forecasting economic growth, job creation and wage growth in cities and their metropolitan areas.
This information can come to the aid of community leaders who seek to analyze all of the worst and best credit practices of the citizens. It doesn’t show vague statistics and the overall situation, but demonstrates the ways real people are dealing with their credit. Therefore, this data is vital for leaders to indicate whether the members of their communities are able to make investments in, say, homeownership.
Some people may argue that the differences in real estate prices, transport opportunities and the proportion of the population still paying for university degrees can become an obstacle in the attempts to keep credit health in float. But we have discovered that this is not the case and it can be improved even taking all these factors into consideration. The purpose of this article is to help executives use financial resources, build local partnerships, and track best credit practices development over time.
Credit score and why it is important
A credit rating, most commonly known known as a credit score, is a number that reflects the ability of the person to deal with their debts properly and the likelihood of them paying credit back.
The algorithm of credit scores evaluation comes down to the analysis of every, worst and best credit practices reports performed separately by three major credit bureaus, namely Equifax, Experian and TransUnion. The creditworthiness is commonly determined by this score and the higher it is, the bigger the chances of getting better terms on finance products or insurance protection are. Normally creditors do not use only one credit score in their underwriting process, but also supplementary financial information, be that income data or employment history.
There are several factors causing a credit score to change frequently. One of them is repayment discipline. Successful past payments prove a consumer to be creditworthy. Whereas delayed or missed payments, prior bankruptcies or delinquencies are not desirable and belong to crucial factors that can affect credit score in a negative way.
The next factor to be taken into consideration is credit expenditure. Credit cards and home equity lines of credit, unified under the notion of revolving credit, identify borrowers as those who are more likely to be at risk of payment dodging. In order to not fall under that category, it is generally recommended to keep the monthly credit balance lower than 30% of the combined accessible limits.
Credit score also depends largely on duration of the credit history. A lot of credit valuation models substantiate well-established credit histories. The reason for this lies on the surface. Such histories demonstrate the experience in credit management and subsequently the trustworthiness of a borrower.
Apart from the aspects that we have covered above, loan diversity is also at the forefront of influencing the credit score. Creditworthiness can be substantially boosted by the combo of installment part payment accounts (these include car loans, loans for individuals and students) and the aforementioned revolving credit (preferably credit cards). In general, however, it does not apply to a single rating and it would be a mistake to believe that a person should take several lines of credit just for the sake of it.
Last but not least, credit score is often determined by recent loan applications, and not in a positive manner. If a person has applied for several new lines of credit within the last couple of years, it is a surefire way to a reduction in creditworthiness. The solution would be to steer clear from making too many recent applications.
That being said, if a consumer wants to preserve his creditworthiness, the only right way to do that is by delivering payments promptly. Another key aspect is to approach the existing debt management with responsibility, and seek to maintain a good reputation by removing information that is likely to be counterfactual from the credit reports. Today, many consumers have access to free online resources that can provide them with all necessary credit information, as well as financial instruments or referrals. With the help of such tools consumers are able to monitor credit risk, correct credit reporting errors, and learn how to save money.
An analysis of the average credit score of the residents of 20 cities based on their credit report, conducted in December 2016, found that the average credit score in the cities surveyed between the categories “bad” and “good” was 300-850 credit score. That is, while some people are just beginning to set their credit history and others are only beginning to do so, there is a need for improvement overall. The breakdown of loan types and their use is a tool that can be used to identify the areas in which executives can help individuals increase the credit score scale, giving them more options.
Another side of mortgage debt
All through the country, these mortgages were, on average, the largest loan for those who held them. Due to the different house prices mortgages were caused to fluctuate the most. The average home loan volume ranged from $ 113,628 for homeowners in Dayton, Ohio, to $ 557,826 in San Francisco, California.
If the credit scores of certain homeowners or those who have borrowed at higher interest rates have improved since taking out their loans, takeout financing could reduce monthly payments or allow them to spend more money each month on behalf of their lender.
Student loans – how can you benefit from them?
Loans paid for education also made up a large part of the debt of those who bore them. The average debt of student loans for those who had student loans in each of the cities studied varied from a low of $ 29,506 in Oklahoma City to a high of $ 49,991 in Boston, Massachusetts.
Holders of long-term student loans may have observed rising credit ratings. This implies that these loans can provide an opportunity for refinancing to secure lower percentage rates or payments. In case it is a federal loan, student loans holders should balance these benefits against the protection offered. Before refinancing, it is essential for them to examine the income prospects and benefits.
Car loans – an integral part of nearly every American’s life
Over the decades, the cars have changed their status from being a luxury to becoming necessity. Today, with regard to the dynamic lifestyle the mankind has adopted, it is almost impossible to imagine the everyday life of an average American without a vehicle of their own. That is why auto loans without exaggeration remain a topical issue to consider. The lowest estimated value indicator of the debt among those who were yet to pay their car loans was $ 15,230 in Louisville, Kentucky, the highest coming up to $ 20,938 in Albuquerque, New Mexico.
Beyond these 20 cities, our analysis has shown that approximately 15 million people could save nearly $ 25 billion, or about $ 1,700 per person, by refinancing interest over the term of their car loans. Our surveys have demonstrated that far more people are willing to dedicate their time to looking up vehicle functions and features rather than shopping around for a car loan. Furthermore, a lot of people choose to trust the car dealer with this task, taking into account the fact that the latter may be able to add percentage to the interest rate. Due to this car loans can be regarded as a great place to reduce payments.
Credit cards and how to use them smartly
The average amount of credit card debt borne by those with open credit cards ranged from $ 4,776 in Santa Ana, California to $ 7,236 in New York City. The finding that credit valuations affect even more than the dollar amount is the percentage of available revolving credit. The average was between 31% in San Francisco and 52% in New Orleans, Louisiana.
Using less than 30% of the available balance is a key factor in calculating the score, among other key factors such as punctuality payments. This can be achieved by paying off credit cards or opening new lines of credit without increasing the amount owed on these cards. By monitoring activity for inaccurate or outdated information and eliminating errors in a credit report, the usage rates reported by the rating agencies can be managed. Keeping credit cards open can be helpful in both calculating usage percentage and creating healthy credit activity.
What is this all about?
While analyzing and comparing the aforementioned data, we sought to look into the current state of affairs regarding the most successful instances of loans and best credit practices in the US and the ability of American citizens to manage them. In order to make financial progress, every individual needs to understand how the credit works and what steps they can take to lay foundation for a better tomorrow