The U.S. government has issued guidance that suggests borrowers who have low credit scores should not get refinancing unless they are in a high-risk zone.
In a report titled “Credit Score and the Credit Cycle,” the U.N. agency warned that low creditworthiness “may be associated with increased credit risk for borrowers in a variety of credit-risk categories, including those who have a history of defaulting on their debt and have high debt levels, are in financial distress, or have not demonstrated adequate income or assets.”
The agency also noted that if a borrower’s credit score is low because of past defaults or other negative factors, then they are not likely to have good credit or that they should not take out a new loan, such as a home mortgage.
It said that even if a low credit score does not cause problems, the lender should be careful in making refinancing decisions because of the high potential for default, which could lead to higher credit costs and a higher interest rate.
The U.K.-based lender is the latest lender to announce guidance for low credit.
“In a normal credit cycle, there is a fairly wide range of credit risk and credit scores across different financial circumstances,” said Jason C. Lefkowitz, president of the Consumer Bankers Association.
“In the past, people have taken the view that it’s important to maintain a good score but the vast majority of consumers have done that and have had good credit.”
In general, people who have very low credit are likely to default on their mortgages and take out expensive, high-interest loans.
Lefkitz said the U,S.
and other developed countries should follow a similar policy.
Credit scores have a strong correlation with household incomes, wealth and employment levels, but the government doesn’t specify how those variables relate to low credit and high credit.
In general terms, a low score can be a cause for concern for people with low credit, but lenders should be cautious about taking on loans for people who might be in a bad credit zone, Lef.
The U, U.A.E. and Australia all have credit scores of 0 or less.
Canada’s credit is less than 1,000, and the U of T’s score is 0.0.
For borrowers with high credit scores, lenders can take on high-rate loans without having to prove that they are ready to pay the interest and principal.
However, there are a few exceptions to the rule.
The U., U.T. and others may have to provide a letter of credit if they have a credit score of more than 300, which is the minimum required by U.B.C. rules.
If a borrower does not meet that threshold, lenders may be able to take out the loan, but only if the borrower has a credit report showing that the lender did not assess the borrower’s income or wealth, and that the borrower paid the loan.