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Credit reports are like a financial report card. They’re used to gauge a consumer’s performance as it relates to credit utilization and consistency in paying bills. Spending habits and financial behaviors are often viewed as a barometer of an individual’s level of responsibility and ability to make wise decisions – not only in the financial realm, but also in other areas. Financial mistakes can often be the result of youthful inexperience and unfamiliarity with financial practices, although in some cases, they are the result of negligence.
Regardless of the reason, the impact on a consumer’s credit score is the same. At the end of 2016, the total amount of charged-off credit card debt was $29,342,768,844. And the average consumer’s credit card debt amount is less than $6,000. Creditors are (rightly) concerned that individuals who default on a relatively small amount of debt could replicate these default levels in other areas of consumer credit, such as auto loans and mortgages. In cases in which a poor credit score does not hinder the consumer from obtaining a loan, the borrowing rate will be much higher, and can often result in thousands of dollars in extra interest compared to the borrowing rate for a consumer with good or excellent credit. However, credit management also affects consumers in a host of other non-financial scenarios, as organizations are finding more ways to make decisions based on credit scores. For example, in one industry report, consumers with low credit scores were more likely than those with good credit scores to file insurance claims – and these individuals also had a tendency to file higher claim amounts. In a data-driven world, organizations in every sector are seeking information that can help them avoid unnecessary risks, and they’re finding out that such financial information as an individual’s credit report can provide valuable insight. As a result, consumers can’t afford to be uninformed regarding the importance of a good credit report and the ways that this information is now being used.