Factors Affecting Credit Scores

How to Increase Credit Score 5 ways to Build Credit Score Fintra
How to Increase Credit Score 5 ways to Build Credit Score Fintra from fintra.co.in

Introduction

Credit scores play a vital role in our financial lives. They determine our eligibility for loans, credit cards, and even affect our ability to rent an apartment or get a job. Understanding the factors that impact credit scores is crucial for maintaining a healthy financial profile. In this article, we will explore the key elements that influence credit scores in 2023.

Payment History

Your payment history is one of the most critical factors affecting your credit score. Lenders assess whether you have made timely payments on your loans and credit cards. Consistently paying bills on time positively impacts your credit score. Conversely, late payments, defaults, and bankruptcies can significantly damage your creditworthiness.

Credit Utilization

Credit utilization refers to the percentage of your available credit that you are using. High credit utilization can indicate financial instability and may negatively impact your credit score. It is advisable to keep your credit utilization below 30% to maintain a good credit score.

Length of Credit History

The length of your credit history also plays a role in determining your credit score. Lenders prefer borrowers with longer credit histories as it provides them with more data to assess creditworthiness. If you are new to credit, it is essential to start building your credit history responsibly to improve your credit score over time.

Credit Mix

Having a diverse mix of credit accounts, such as credit cards, student loans, and mortgages, can positively impact your credit score. Lenders view borrowers who can manage different types of credit responsibly as more reliable and less risky.

New Credit Applications

Each time you apply for new credit, it triggers a hard inquiry on your credit report. Multiple hard inquiries within a short period can indicate financial distress and may lower your credit score. It is advisable to limit new credit applications unless necessary.

Public Records and Collections

Public records, such as tax liens, bankruptcies, and collections, have a severe negative impact on your credit score. It is crucial to address any outstanding collections or public records promptly to minimize the damage to your creditworthiness.

Credit Age

The average age of your credit accounts also affects your credit score. A longer credit age demonstrates stability and responsible credit management. Closing old credit accounts can reduce the average age of your credit, potentially lowering your credit score.

Credit Inquiries

Soft inquiries, such as checking your own credit score, do not impact your credit score. However, hard inquiries, initiated by potential lenders when you apply for credit, can temporarily lower your credit score. It is important to be cautious when applying for new credit to avoid unnecessary inquiries.

Conclusion

Understanding the factors affecting credit scores is essential for maintaining a healthy financial profile. By focusing on timely payments, keeping credit utilization low, and maintaining a diverse credit mix, individuals can improve their credit scores and enhance their financial opportunities in 2023 and beyond.

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National CMBS Loan Default Pace Appears Slower, But Overall Rates Are Still on the Rise

CMBS loan (commercially backed mortgage securities) performance is among the driving factors of the U.S. commercial real estate market. Commercially backed mortgage securities represent bonds, or debt instruments, whose financial performance is based on the repayment of commercial mortgages and the gains realized from corresponding interest payments. These securities are often bundled as packages of debt and resold on secondary and tertiary markets. Entities who invest in these debt instruments can realize a maximum rate of return when the originating commercial loans are repaid on time, with principal and interest, and in full.The ongoing commercial real estate woes have been fueled by historically high percentages of these loans failing to be repaid on time…and nowhere near “in full”. The default rate measures the amount of outstanding commercial property loans that have failed to be repaid as planned under the original loan agreement. A loan is typically categorized in default when the borrower falls beyond 90 days behind on payments, ceases making loan payments entirely, or fails to meet a balloon payment obligation at the loan’s maturity. The vast majority of commercial loans consist of either 5 or 10 year repayment terms with the balance of the loan due in full at the conclusion of the term (or maturity). Once a loan is considered to be in default, traditional banks transfer the loans over to special servicers. Special servicers have the ability to modify the loan repayment terms as well as the ability to foreclose.In 2011 and moving onward through 2012, a considerable amount of 5 year commercial real estate loans, originated in 2006 and 2007, have already matured or will reach maturity. Herein lies the primary concern; commercial properties in most regions of the US are worth a mere fraction of the inflated values on which their loans were underwritten during the credit “bubble” days of 2005-2007. Properties in Nevada, Florida, and California, among the states most heavily impacted, were afforded valuation-based loans averaging in excess of $20 million. Current valuations are now 40-60% of that value. Borrowers obligated to 5 year amortization schedules or interest-only loans are now saddled with the inability to obtain refinancing on assets that were formerly projected to double in value. As borrowers struggle with this seemingly impossible predicament; lenders, investors, and other owners of CMBS debt are frantic to escape with even small fraction of their principal intact.While maturity default is a large part of the crisis, payment default continues to equally plague the commercial real estate industry. Recent declines in property values are further driven by the failing tenants and their inability to pay the rent. Since 2010, a majority of commercial property owners have granted some form of rent concessions or lowered rent payments for their commercial tenants. As rent income declines, the ability to break even and make the mortgage payment declines with it.According to the Fitch ratings report, the cumulative CMBS loan default rate in 2011 closed out at 12.7%. This accounts for approximately $71.3 billion of US commercial debt that will go partially or completely unrecovered. Moving into 2012, Fitch Ratings’ study projects that the default rate will reach 14.5% by year-end.Commercial loan modifications are quickly becoming more popular among special servicers as an avenue of resolution and an alternative to the heavy losses of foreclosure. Growing proof that servicers are actively modifying distressed commercial loans was further evident in the Fitch Ratings study due to the fact that true CMBS default rates of 2012 have actually been masked by modification. Fitch goes on to report that many loans have been recently modified by special servicers prior to experiencing a monetary default. The gravity of the CMBS default crisis and imminent foreclosure projections has prompted some servicers to modify loans proactively.As Fitch accounted for loans reported as modified in 2011, but never listed as delinquent, the cumulative default rate would have actually reached 14.8% and not 12.7%. This equates to a projected (actual) default rate of 16.6% ending out the year in 2012. This is representative of nearly $98.6 billion in unpaid CMBS loans within the US.Although Fitch ratings have indicated an overall decrease in the rate of commercial loan defaults extending into 2012, the cumulative total continues to climb to alarming levels. Until the actual pace inches back ever so slowly to zero, borrowers facing commercial loan repayment obligations will continue to face substantial obstacles in the next few years to come.The Fitch Ratings studies are true. Special servicers are approving loan modifications and offering borrowers new solutions in the wake of the commercial property crisis. However, these modifications are often approved under very stringent terms along with complex stipulations.