Consequences of Poor Credit
Bad credit can cause many problems. If you routinely pay your expenses after the due date, you probably won’t only have to worry about late penalties. Bad credit practices make it extremely difficult to get financing in the future. They may also make it challenging to obtain a mobile phone deal or even to obtain employment in some fields.
- Borrowing Approval Difficulties When Dealing with Poor Credit
Financial entities base loan approvals on your reputation. They make this determination in part by requesting your credit number from agencies like FICO and VantageScore. These credit scoring algorithms evaluate your trustworthiness based on the data contained in your credit records, such as your loan amounts and payment patterns.
- Poor credit can make it hard to get a car loan, house, or credit card.
Even if you meet the criteria, your higher risk of failing will likely result in higher interest rates. Many credit card companies, for example, look for scores between 670 and 700 on the FICO and VantageScore scales before extending credit.
To qualify for traditional mortgage financing, your credit score needs to be at least 620. Even with a credit score below 500, the FHA loan may be a choice if you have a 10% down payment and are ready to pay mortgage insurance.
Even if your credit is bad, you may need to obtain money fast to avoid financial ruin. Credit issues can make getting an emergency loan harder, but there are options. But it is for such cases that there are small business loans for poor credit.
- A Decrease in Available Rentals
There are plenty of people besides homebuyers who are affected by a lack of credit background. Also, it can come back to bother you when you attempt to hire. Landlords, like banks, like to see that you can pay your rent on time before turning over the keys. Therefore, they will usually pull your credit record when you apply.
Renting can be challenging if you’ve made financial mistakes. There are ways to get around having bad credit, such as getting a cosigner or giving a higher security deposit, but it’s much easier if your credit is good to begin with.
The importance of an excellent credit background does not diminish with age. Since Medicare does not pay for long-term care, nursing homes and assisted living places must use private money. Admissions decisions are often contingent upon a credit check to ensure the candidate has the financial means to cover their stay.
- Increased premiums for health insurance
People don’t plan to pay more for car insurance after racking up credit card debt or falling behind on mortgage payments. But that’s precisely what some insurance companies do (although some states prohibit the practice).
Low credit scores raise the likelihood of filing a car insurance claim. More likely you are to be at blame in a mishap is how bad your score is.
Other companies can check credit data. Some residents’ and tenants’ insurance plans set rates using a hidden credit-scoring system. Life insurance companies don’t use credit scores, but recent bankruptcy may make it harder to get a policy or the best rates.
- An Electricity Security Payment
SBad credit makes opening an internet or service company account difficult. Customers with bad credit may need deposits to defend against nonpayment.
Getting a cell phone plan can be tough without good credit. Some service companies require prepaid plans or fees for low-credit clients. You may not qualify for the best rates on common phones.
- It’s Hard to Find Work
A potential employer may require financial history, referral contact information, and a background check during your next job interview. Why? Businesses must be confident in their new hires’ financial decisions when hiring for managerial or financial jobs.
In 2016, 72% of CareerBuilder-surveyed companies performed background checks on new hires, with 29% also checking credit scores. If your credit score drops, funding may cost more. It may hurt your career.
To Sum Up
Bad credit has far-reaching impacts. Bad credit makes it hard to rent and raises loan interest rates. Criminal records may hurt job applications. Check your credit score now if you haven’t lately.