Obtaining a credit card, car loan, or mortgage can be particularly difficult if your credit rating isn’t up to par and, even if you qualify, you may still have to pay a higher rate of interest. Plus, a poor credit score can influence a job search or apartment hunt as employers and landlords tend to prefer those who have proven themselves to be financially dependable.
The consequences of having a low credit score can stretch quite wide. But you don’t have to let poor credit history get in the way of your long-term financial goals. Let’s evaluate the main implications of a bad credit score.
Fewer Credit Card Options
Those with poor credit scores may find that they have fewer credit card choices available and interest rates may be higher.
Individuals with lower credit scores may find credit cards available to them, but these will not have the same advantages as the top credit cards accessible to those with higher credit ratings. The interest rates on these cards can be as high as 29 per cent, in contrast to the current average of roughly 17 per cent. When your credit score is good, there are lots of great credit card choices available to you with lower interest rates and beneficial cardholder perks (like travel points).
Increased Cost of Insurance Coverage
Generally, credit scores are utilized to figure out how likely it is that a person will be delinquent on their credit. This means that the lower your rating is, the greater chance the lender thinks that you will neglect to make a payment. When buying insurance, you also have an insurance score that resembles a credit score (and relies upon much of the same info), but it also considers how prone you are to submit a claim.
Much like a credit score, an insurance score considers your payment history, total debt, credit history duration, new credit, and credit mix to determine the cost of your policy. Generally, the higher your insurance rating, the lower your insurance premiums will be. It is worth noting, however, that while credit scores and insurance scores are similar, they are not necessarily the same.
Pricier Car Loans
When applying for an auto loan, your credit history will have an impact on your success in both acquiring a loan and the interest rate you are offered. Those with good credit can often find auto loan rates as low as 4.19 per cent, while those with poor credit may have to accept rates as high as 20 per cent.
An Increase in Mortgage Interest Rates
Mortgage providers tend to worry that those with a poor credit background will be unable to meet the payments on a mortgage. There is no specific credit score that will immediately stop someone from obtaining a loan, but having a low score can make it difficult to find an issuing lender. Even if a loan is acquired, a lower credit score often leads to higher interest rates, meaning the overall cost of buying a home is much higher.
Steep Rent Rates
When assessing prospective tenants, some landlords opt to conduct a credit check in order to judge whether the applicant is financially reliable and likely to pay rent on a regular basis. They will be allowed to view the credit report, but not the score itself. Additionally, they can view the portion of the credit report that displays the payment history and determine if the person has ever been evicted in the past, which could affect their decision.
Those with a lower credit score may find it more feasible to rent from a landlord with a smaller portfolio, as large property management companies are typically more likely to do a credit check. This could result in the need for a larger initial payment. A co-signer with a good credit record might give a landlord assurance that the rent will be paid each month.
Security Requirement for Utilities
Security deposits are sometimes requested by utility companies for service activation. These amounts are paid up front as a guarantee that all bills will be paid in full. Therefore, customers are often required to pay a certain amount prior to the start of service.
When signing up for utilities, the company looks over your credit report, particularly your payment history. If you have a bad track record with payments, they may require a deposit to set up your account.
The Federal Trade Commission (FTC) stipulates that utility companies cannot require deposits from some new customers and not others. However, many providers waive deposits based on meeting their credit criteria. Thus, the lower your credit score is, the more probable it is that you will need to pay a deposit to open an account. Additionally, some utility companies may accept a letter of guarantee, which is a document from someone who has consented to cover your bill in the event you are unable to make the payment.
Rejected Job Applications
Attempting to get a job and having unsuccessful applications can be a discouraging experience. Nevertheless, it is important to keep in mind that failure is a natural part of the process and that one should not give up. Learning from the mistakes made and continuing to apply for job opportunities is the best way to get closer to achieving your goal.
When looking for a job, a person’s credit score can be a deciding factor in whether or not they are hired. Employers may look at an applicant’s credit history to get an idea of how dependable and trustworthy they are. If the credit report shows an individual has had difficulty with payments or has a history of not paying back loans, this can be seen as a warning sign to employers that they may not be reliable employees.
Starting a Business Can be a Challenge
You often have to spend money in order to make money, especially if you’re starting a business. Unfortunately, if your credit score is low, it can be difficult to obtain a business loan or credit card with appealing rates. Even if you can get a loan with a low credit score, you are likely to receive a lower loan amount and higher interest rates than if you had a better credit score.
So, to sum up:
Having a bad credit score can be a hindrance when applying for credit cards, loans and mortgages, and can even have an impact on your job prospects. However, there are multiple ways to improve your credit history and build your credit score. Start by making all your payments on time for every credit card and work on paying off old debt. Applying for a secured credit card or personal loan is another way to build up a positive credit history and increase your available credit. You should see an improvement in your credit score as you practice good credit habits and use credit responsibly.
Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.
We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.