Negative Effects of Bad Credit on You
The effects of bad credit on your finance is not good in any way. In fact, you should try as much as possible to avoid having a bad credit. As they say, prevention is better than cure. While it is very easy to allow your credit to turn bad, the situation may not as that easy to correct. However, if your credit is bad, it does not mean that you will not be able to do anything to normalize the situation. But that is not the focus for this article. This article is aimed at opening your eyes to the effects that bad credit may have on you. If you know its implications, may be you will be encouraged to avoid running the risk of entering into bad credit.
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Effects of Bad Credit
Few Loan Options: When you want to get a loan, it is a normal advice that you should shop around so that you can get the loan with the best deal. But the reality is that, most of the loans you will see advertised require a certain minimum credit score. If you don’t meet the loans requirements, this implies that you will not qualify for such loans. A good example is mortgage loan. There is no lender that you will approach for a loan that will not like to check your credit file. Once a lender discovers that you have a poor payment history or that your credit is generally bad, he will not like taking the risk of lending you the money. The risk is that, if you are granted the loan, there is tendency for you not to pay back the loan. That will mean a loss to the lender. Even if the loan is transferred to collection, it may not be a convenient or efficient way of collecting loan. Besides, for the fact that lenders will check your credit each time you apply for a loan, this may ding your credit score further. That type of credit check is called hard inquiry. Hard inquiries will lower your credit score by few points.
High Interest Rates: Everyone will like to enjoy low interest rates but the truth is that, low interest rates are only accessible to people with good or excellent credit score. Since you only have few loan options, you may not have any other option than to accept the interest rates that lenders who are willing to grant you loans may slam on you. Why would lenders charge you high interest rates? They do so in order to compensate themselves for the risk they are taking by extending loans to somebody who have the potential of loan default.
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Difficulty in getting credit cards: You also need good credit for you to get a credit card. If you have a bad credit, you will not be able to get regular or reward credit card. The only option you have is to apply for credit card that is meant for people with bad credit. A good example of credit card for people with bad credit is secured credit card. Secured credit card will require that you pay a deposit to the card issuer. This deposit will serve as security in case you default in paying your card balance. In most cases, the card issuer will like to set your credit limit at or below the amount you deposited. If you use your secured credit card responsibly for a period of one or two years, the card issuer may upgrade you to a regular credit card. This means that the lender will refund to you the initial deposit that you paid as collateral. However, you should not expect any interest on the money.
High Insurance Premium: Whether you are buying auto insurance or homeowners insurance, your credit score also plays a vital role in determining the premium you will be asked to pay. With a bad credit, you should expect to pay higher insurance premium than somebody with the same situation with you but with a better credit score.
Problem of Employment Opportunities: Employers do check credit scores of their potential employees nowadays. But they can only do this with your permission. You may be asking that what has your credit score got to do with employment opportunities. Well, this may not be clear to you. But one thing you should know is that, if an employer is interested in your credit history, such employer may refuse to hire you if you have a bad credit.
Problem getting apartment to rent: Rent is a source of income to homeowners. They will not like to give their apartment for rent to somebody who will not be able to pay the rent when it is due. So, with a bad credit, you may find it difficult getting a new apartment. If you have already gotten one before your credit turned bad, I will suggest that you ensure that you pay your rent promptly so that you won’t have problem with the landlord. If you are forced out, you may find it difficult to get a new one. If you know you will not be able to pay your rent at the due date, you should not wait till the time the rent is due. You should be proactive by discussing your situation with the landlord. Give him the assurance of when you are going to pay and ensure that you keep to your promise.
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I will like to conclude that it is safer to stay away from bad credit. If your credit is bad already, you should ensure that you take steps towards repairing it. The earlier you do this, the better.