Seemingly harmless at first glance, three-digit FICO scores have come to represent the ominous truths about the financial stability of everyday Americans.
According to Richard Cordray, director of the Consumer Financial Protection Bureau, credit score can seep into nearly every crack of a consumer’s life. “Whether you realize it or not, [credit agencies’] scorekeeping exerts a tremendous and growing influence over the ways and means of your financial life.”
Just as employers seek proof of identification with a social security number, loan lenders seek proof of reliability. By transforming Americans into a trio of numbers, financial institutions have harnessed the ability to stratify individual eligibility for credit and loans, regardless of their personal story, background or any other factor.
One of the ways Americans are turning to either salvage their so-so credit or maintain a decent score is through the use of unsecured personal loans. Used for vacations, weddings or just to consolidate debt, these high-dollar loans can either finance your dreams, or keep your head above turbulent financial waters.
Saving Drowning Credit, or Securing Its Safety
Unfortunately, credit scores are about as stable as a high school romance.
Just as lenders can increase rates at the drop of a hat, so can a credit bureau make your score plunge.
One of the advantages to taking out an unsecured loan is the traction you can gain in regards to credit building. Although it is never advised to take out unnecessary amounts of credit, obtaining an unsecured loan can improve a dismal credit score if you’re diligent about repayment.
Even if your credit is decent, a FICO score always has a little room to grow. Promptness in your payment of an unsecured loan will translate to a higher score, meaning better rates for potential credit products down the road.
Financing a Dream
Whether it’s a getaway vacation or a fairytale wedding, American culture has placed extravagant life purchases on a pedestal. And for those with above-average credit scores, personal loans can aid in just that.
According to a survey by American Express, the average American family will spend about $1200 per person on vacations in a single year. Pair that price with an average median household income of $50,000, and you could be seeing a 5 or 7 percent chunk of your paycheck towards a getaway.
Just as vacations are running American’s bank accounts dry, so too are their dream weddings. The Wedding Report, a Tucson, Arizona-based market research firm estimates the total cost of a wedding to be upwards of $25,631—and that’s pre-honeymoon.
Yet, no matter how ordinary an expense they seem, paying out of pocket for these events would be somewhat of a stretch of many consumers. Often times, the best way to finance a wedding or a vacation is through a loan. With an unsecured personal loan, no collateral assets are required to offer, so borrowers of unsecured personal loans can rest a bit easier knowing their collateral won’t be on the line.
Likewise, the temptation of spending even more with a credit card won’t be trying to lure you in, so you’ll be focused on your repayment and ability to stay on track.
Lumping Your Bad Credit Woes into One
Although just over half Americans feel secure in their savings, about a fourth are feeling the pressure of a debt crunch, Fox Business reported.
As the study goes on to say, four out of ten households surveyed said that they had more credit debt than cash for emergency savings. And with Americans carrying an average of 3-4 credit cards in their wallets, the debt is pulling consumers down from multiple angles.
While it taking out new credit isn’t always optimal, it can be a viable option in certain situations. One of the key features of unsecured personal loans is option to lump multiple debts into one single sum. While you should try to pay off debt as quickly as possible, sometimes acquiring a new loan can prove beneficial down the road.
By combining your debts into a single payment, not only can you reduce payment chaos, but you can save substantially if you consolidate right. For example, if your credit card APR is particularly high, you might be able to obtain a loan with a lower APR, as well as avoid situations of revolving credit.
Selecting Your Spending Wisely
Whether you’re in tip-top credit shape or being dragged down by debt, researching your loan options and benefits is crucial. While unsecured personal loans bridge a financial gap to extravagant purchases or consolidate your debt, they should be carefully considered. Always question the necessity of taking out a loan before you commit. Can you do without a luxury jet-set to the Bahamas? Can you pay off all your debt before enlisting the aid of another loan?
No matter what the personal circumstance, always exhaust every opportunity before making a final decision.
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