Many people know so little about their credit score until they try to acquire a loan to finance their new business or buy a big asset like a home or car. This score helps lenders evaluate your trustworthiness and credit risk. The three-digit number that normally ranges from 300 to 850 helps them determine whether you are eligible for a credit card, mortgage, or some other types of loans, and the interest rate you should pay for it.
Generally, the greater the number, the more reliable you seem to lending institutions. The lesser your score, the riskier you appear to lenders. However, this three-digit number influences more than just lending decision, it can also determine whether you qualify for a rental house and even who may be ready to be in a relationship with you. Let’s now look at seven ways a bad score can negatively impact your life.
1. Future Borrowing Becomes a Hassle
Before approving a card application or loan, most lenders will check your rating and evaluate your history. Regardless of how badly you need to get money, the odds of approval are low if you have a poor rating. The lending agencies want to confirm your repayment capability and capacity before trusting you with their money. It is advisable to understand your financial rating before borrowing and start working on improving it if it has dropped significantly.
2. Unfriendly Loan Terms
We can’t entirely rule out the possibility of obtaining a loan with a poor score. Although qualifying for unsecured financing could be extremely difficult, people with a bad rating can get secured bad credit loan $5000 from some lenders. However, the terms will be unfavorable. The lower your rating, the higher the interest rate the creditor will charge you. Even if you get an approval, chances of obtaining a huge sum will be slim because you are a risky debtor.
3. It Could Prevent You from Renting Your Favorite Apartment
Landlords nowadays are looking for tenants who have decent profiles. If yours isn’t that fine, your potential landlord could reject your rental apartment application. Various studies and surveys have revealed that your financial history and rent-to-income ratio are the two most important factors that landlord check when they go through an application. If you seem untrustworthy and inconsistent with bills payment, property managers will think twice before allowing you to be their tenant.
4. Finding a Well-paying Job May Be Hard
Many hiring managers and recruiting agencies now incorporate creditworthiness checks into the application process. A decent profile is a representation of your accountability in managing your finances. The assumption is that if you are irresponsible with your finances, you won’t take your job seriously as well. Financial agencies and government institutions are likely to base their hiring decision on applicants’ credit. An applicant with a good rating will have high chances of getting the job.
5. Possible Relationship Problems
Whether you fail to reveal your financial profile or disclose it from day one, a poor rating is likely to bring some trouble for you. Although your profile doesn’t really combine with your partner’s after marriage, his or her profile can have an impact on your capability to be eligible for new instruments like home and car funds, especially if you are filing a joint application. For instance, assume you have an outstanding profile and your partner’s isn’t that great. When you jointly apply for home financing, the creditor will review both profiles and evaluate your family’s total financial risk. Despite your risk being low to suit the lender’s eligibility requirement, you are likely to part with a bigger down payment or greater interest rate together compared to if you were taking out the loan by yourself. Such situations can cause tension and hostility in your personal relationship.
6. Creditors Can Take Tough Legal Actions against You
When you consistently fail to pay bills or an unsecured financial instrument, creditors will alert you concerning the repayment. If you continuously ignore their reminders and decline to repay, lenders might notify you of their intention to take legal action against you. Although you will have an adequate notice period, a court case can make the issue worse and reduce your borrowing prospects in the future. It is important to negotiate with the lender and settle the matter out of court before it gets out of hand.
7. Getting a New Business off Ground May Be Difficult
If you are planning to set up a new business and you have limited funds, you will certainly need to raise more money. With a poor rating, it will be difficult to borrow from banks, non-banking finance institutions, and online lenders. Creditors will delay or decline to approve your business loan application due to your negative past monetary activities. You must pay off outstanding payments or clear any other undesirable issues with the relevant scoring bureaus to improve your chances of qualifying for a business funding.
Poor credit history doesn’t necessarily mean that you were completely reckless. Perhaps you were hit by a medical emergency or unanticipated expenditure, leaving you in a tight financial situation. The good news is that you can change your situation by taking tactical measures to resolve the bad credit. Remember improving your score isn’t an overnight task – it takes time, hard work, and personal commitment. You must embrace smart money management practices and remain patient throughout the entire period.