Late fees are probably not your only issue if you have a history of paying your bills after the due date. Poor borrowing practices damage your credit, making it harder to get loans in the future. Having bad credit can make life very tough, from finding a job to getting a place to live, as so many businesses now assess you based on your credit score.
Here are the seven main disadvantages of having a bad credit score, i.e., why avoid having one at all costs?
#1: Receiving Loan Approval Can Be Challenging
Your chances of getting a new loan or credit application approved directly depend on your credit score. Many lenders will refuse to grant you a loan if you fall below a specific quality level, even if you are close to their quality level cutoff; as some like to put it, it’s not their job to care.
#2: You’ll Be Exposed to High-Interest Rates
If you are granted a loan, the interest rate you will be charged will probably be quite high. Lenders charge you a very high-interest rate on your loan because they view lending to people with bad credit as risky business. Usually, you will pay more toward interest than the principal, especially in the long term.
Fortunately, some companies offer equipment financing for bad credit. Feel free to visit FinImpact to learn more about the best available options for bad credit.
#3: Increased Mortgage Rates
Even while no credit score minimum immediately disqualifies individuals from acquiring a mortgage having a poor credit score can make it challenging to locate a lender to underwrite your loan.
Even if you are approved for a mortgage to buy a home, you will probably pay much higher interest rates because of your poor credit. As a result, buying a property has substantially greater overall costs.
#4: Finding A Job May Be Harder
Many jobs, particularly those in senior management or the financial sector, have certain requirements that prospective workers must satisfy: a high credit score.
Due to your poor credit history, you may find it harder to get the desired job, especially if you have a history of bankruptcy or extremely high debt levels.
#5: Higher Insurance Premiums
Of course, insurance providers look at credit scores as well. This is because studies have linked low credit scores to a higher possibility that drivers may submit claims to their vehicle insurance provider.
Your premium won’t automatically go up if your credit score drops. Nevertheless, whether or not you’ve made any claims, a low credit score may keep you from receiving the lowest rate.
#6: You Won’t Get The Best Credit Cards
You will certainly not be able to eligible for the best credit cards available if your credit score is bad. Also, you will have to pay considerably higher interest rates on your balance each month. Furthermore, you’re less likely to receive promotional rates, discounts, or other benefits related to your credit products.
There are credit cards made for those with bad credit, but a lot of them demand a security deposit.
#7: Lower Chance of Getting A Cell Phone Contract
Most of the big cell phone providers check your credit score when you sign up for service. They believe that since they are offering you a month of service, they must ensure that your payments will be reliable.
If your credit score is bad, you may have to buy a prepaid mobile phone or sign up for a month-to-month contract, where the cells are often more expensive.
How To Improve Your Bad Credit Score?
The excellent thing is that you can improve your credit, even if it is bad. Here are some strategies to help you start raising your credit score:
- Pay all bills on time – Missed payments may be reported to the credit agencies and lower your score; on the other hand, regular and timely payment behavior may raise your score. Additional choices, such as a payment plan or a reduction in interest charges, can also help.
- Reduce your remaining loans – Your debt-to-income ratio, which is strongly considered when determining your credit score, will go down the more debt you can pay off. You’ll also pay less interest if you owe less money.
- Examine your credit report and report any mistakes – To check for mistakes or indications of fraud, request a free copy of your credit report from each one of the three main credit bureaus. If you find any, ensure to report them and make use of the tools and credit monitoring services offered.
- Avoid incurring new debts – Lenders could see it as an indication that you are a risky borrower who can’t handle your present financial responsibilities. Another unneeded temptation that might keep you in a downhill spiral is taking on new loans.
- Debt consolidation – Think about requesting a debt consolidation loan so you may combine all of your debts into one payment each month with a possibly lower interest rate.
The Bottom Line
It isn’t easy to overstate how important your personal credit is. However, if your credit score isn’t exactly where you desire it to be right now, it’s not the end of the world.
With such a wide range of online resources for credit tracking, it’s simple to keep an eye on your credit and figure out how to strengthen it. Monitoring your credit is a terrific method to strengthen your financial self-confidence. And any small increase in your credit score is a reason to celebrate!
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