What Are the Consequences of Bad Credit?
If you think that maxing out your credit card or defaulting on your loan repayments are not that big of a deal because you can’t be jailed for civil debts, think again. These irresponsible actions can give you a bad credit score, which has grave consequences.
Defining Bad Credit
A credit score represents your credit risk or the possibility of defaulting on a debt. It is a measure of your financial health and your trustworthiness to financial institutions. The score is calculated based on your credit report. It is the history of your credit behaviour from the information submitted by your lenders to the national credit bureaus.
Credit scores can range from 300 (lowest) to 850 (excellent). Although there are variations in credit scoring, the generally considered good score starts at 650 while 600 and below is bad.
How Bad Credit Affects You
Having a bad credit score can make your business dealings difficult. Some of the most common side effects of bad credit include:
Getting Disapproved for Loans and Credit Cards
Your future loan applications are likely to get denied since most lenders consider your bad credit score a red flag. As a high-risk borrower, lenders believe that you won’t repay your debt as you have done in the past.
Any new credit card application is also likely to be disapproved, especially if your last delinquency was too recent or if your loan and credit card balances are too high. The issuing bank or credit card supplier knows that if you have too many existing debts, it would be harder for you to take on a new payment.
With your credit card and loan applications disapproved, more inconveniences follow, including the difficulty of:
- Starting a business
- Purchasing business equipment and tools
- Getting a car
- Buying a new house
Paying high interest and downpayment on loans
You can still get a loan with bad credit, but you would need to pay a higher interest rate and downpayment. A bad credit loan, also called a second chance loan, is more expensive to compensate for the high risk of you defaulting on your loan again.
Getting denied for employment
Employment can become difficult, especially in the finance industry where money management skill is essential. Under the Fair Credit Reporting Act, it is legal for future employers to review your credit report with your written approval. They can check your credit report to look for patterns that might affect your job performance. You can be turned down for a job because of high debt amounts and bankruptcy.
Paying a higher premium on insurance
Insurance companies check your credit background before deciding on your insurance premium. If you have a bad credit score, you are likely to file more claims since you are financially struggling. Thus, they would charge you a higher insurance premium to compensate for the increased risk.
Getting denied for an apartment or condo unit
Some landlords look into the credit history of their potential tenants before awarding the lease. They would prefer to lease their apartment or condo unit to someone with a good credit history than to those who are likely to be delinquent on the monthly rental payment.
Life can become too inconvenient with bad credit. This is why it is very important to build a good credit score.
The Loan Experts at Loans For People With Bad Credit can help you secure a loan that works best for your financial situation and sort out your credit history. Call 1300 769 384 or fill out the Bad Credit Loan Pre-Approval form to get started.
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