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How Does Bad Credit Affect You Negatively?

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We live in a world deeply affected by financial woes, and you’d be hard-pressed to find someone that doesn’t have any, one way or another. The economy isn’t exactly getting any better. And people’s salaries aren’t increasing at a rate that would cover their debts and commitments. While some people resort to investments to secure their financial future, others have no option but to use credit cards and take out loans.

The problem with that solution is the fact that you will get into trouble if you don’t pay your installments on time, which happens to a lot of people, and as a result, their credit score deteriorates. You can be affected in several ways by having bad credit, and it can make your life much harder.

Higher interest rates for credit cards


The problem with having a bad credit score is the fact that you’re an instant risk factor, and lenders take that into consideration and assume you might default on payments. As a result, they impose higher interest rates from the get-go, because you are basically riskier for them than the average person who wants to take a credit card. So, yes, you might get approval from that credit card you need, but you’ll end up paying a higher interest rate than a person who has a good score.

Higher interest rates and down payments on loans

Most of the time, people with a bad credit score will need to apply for a loan so they could get out of their straits. While having a bad credit score makes it more difficult, it is possible that you might get your loan approved. Unfortunately, it will also come with higher interest rates due to the same risk factor associated. Moreover, you also will be expected to pay a bigger down payment. Let’s say you’re applying for a mortgage on a $250,000 home, but you have a bad credit score. The person lending you the mortgage will most likely ask for up to 20 percent as a down payment because of the associated risk factor, while a person with a good credit score can get away with just 5 percent. The interest rate you pay on that mortgage will also be significantly higher, and you will end up paying thousands of dollars more.

Loan approvals become more difficult

Perhaps the biggest problem with having a bad credit score is how it will make getting loan approvals much harder. The worse your score is, the more difficult it will be to find a lender willing to give you the money. Banks, for instance, don’t want to get involved with a risky loan, so they just reject requests that fall under a certain level. It is not impossible, though, to get a loan even with your bad score. As mentioned earlier, it will come with higher interest rates, but that is a price you’ll have to pay if you do need the money. In that case, some in-depth online research at Loanry.com: how to get a loan can help you understand where you stand and explore your options—such as credit unions, which offer a fixed interest rate of 18 percent. However, you should know that those alternatives usually take some time to process, and other than interest rates, the loan fees themselves will probably be higher as well.

Problems with renting apartments

Having bad credit will also be problematic should you decide to rent an apartment. More often than not, the landlord will likely check your credit score, and it is a common practice to ensure that they’re dealing with a trustworthy individual who will be capable of paying the rent on time. So, you can expect a thorough check of your credit history so they can see if you have any previous patterns of delays, delinquencies, and any other financial complications.

Added costs

Bad credit affects you in several aspects, and you end up having a lot of added costs apparently out of nowhere. For example, utility companies––internet, cable, electricity, gas, and so on––also perform credit checks when you apply for any of their services. If they found out that you have a bad credit score, they’d most likely ask you to pay a security deposit so you could get the service running. That way, they ensure that no delayed payments would occur, and you have to pay a certain amount of money in advance. This is naturally problematic because it’s just adding costs to your already-weary financial situation.

Trouble with employers

While it shouldn’t play into your employment chances, credit history is unfortunately taken into consideration. It’s been shown that a lot of employers do credit checks on potential candidates, and they do it to get an idea of just how responsible you are as a person. This is even more likely to happen if you are applying for a job that has to do with finances in a bank or any other financial institution, because who would want to trust a person with their business finances if they can’t even handle their own?

You might not be able to get a cellphone contract

Yes, a telecom company will also check your credit before they can accept your application. It’s basically for the same reason as the above; these people are providing you with a service in advance, so they want to know that you’re able to pay for that service by the end of the month. Bad credit is definitely a red flag for most companies, and they might not give you a contract, and if they did, you’d most likely be handed a month-to-month contract, which costs more money and isn’t as practical.

 

Bad credit can negatively affect your entire life. Between job problems and other financial complications, you’ll find that you’re between a rock and a hard place. It is possible to get out of that situation, but you’re going to have to do some belt-tightening. More importantly, you should start improving your credit score by paying all upcoming installments on time and avoid taking out new loans.

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