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Your neighbors and your equity

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In another Denver Post article by David Migoya, he indicated a number of additional factors credit card companies are now using in addition to the traditional credit score. While the traditional credit score is primarily influenced by your loans and credit limits, as well as credit bureau records of your debts and payment history, many of these new criteria are factors we have less control over.

New criteria can include where you live, what part of the country, and what specific neighborhood. If you live in an area that is flagged as high in foreclosures, that could trigger a higher interest rate, regardless of how diligent you are in making your own payments. Your employment could also trigger a rate increase if you work in an industry that is considered riskier…such as the automotive industry, construction…real estate. Yikes! These are factors most of us can not control or change easily.

Another factor examined by credit card companies are shopping habits or changes in shopping habits. If you buy most of your household necessities at Wal-Mart, that could raise a red flag. If you are now economizing, buying less and shopping at less expensive stores than you used to, eating out less, etc., that could signal that you are anticipating harder times ahead and could draw the attention of credit card companies.

Who will be most affected by these developments? Probably those with fair to average credit scores. What can you do? Keep an eye out for any changes in interest rates and terms, particularly on credit cards. When you do want to borrow money, compare several different sources for interest rates and terms and read the fine print.

If I want to get a loan to buy a car or a home, I don’t mind the lender examining my assets, liabilities and credit history. However, I’m less comfortable realizing that my neighbors’ payment history or what I do for a living could limit my financing options. What do you think?

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