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Your credit score is a simple three-digit number that can make or break the quality of your life. The benefits of having good credit are vast and help to improve your personal and financial life. However, bad credit has many consequences that are more serious than you might think.
Ignoring bad credit if you have no immediate use for credit can seem easy, but the consequences are dire. For example, a 522 credit score falls under the “poor” credit score range and will make lenders view you as a high-risk borrower. You might spend money unnecessarily by paying higher interest rates on your loans because of bad/low credit scores.
While working on your credit score might feel challenging, it is a necessary step to building a healthy financial life. This article will discuss the consequences of having bad credit and explore how you can fix it.
What Does Bad Credit Mean
As someone new to credit and credit scores, you might wonder, ‘is 517 a good score’ The answer to this question is no. Bad credit can refer to the negative information on your credit reports resulting in a low or bad credit score. Any credit score below 580 should generally be considered a bad credit score.
However, you must understand that lenders and credit reporting agencies have different ways of scoring your credit. Thus, the term ‘bad’ credit is relative to the lender you’re borrowing from, the type of finances you’re applying for, and how your score is calculated.
A lender might decide to allow you to apply for a loan with a 643 credit score, which is ‘fair’ in the credit scoring range. Another lender might reject such a score, especially if you’re applying for a mortgage loan in competitive real estate markets.
What Are The Consequences of Bad Credit
Having bad credit means you’ve made some financial mistakes in the past. Bad credit will make landlords and potential employers view you as a less reliable individual. These perceptions can impact every area of your life and have considerable consequences. Below are some of the ways bad credit will cost you.
Difficulty in Getting a Loan
You shouldn’t be surprised to note that banks and other financial institutions want to know how likely you’ll pay them back before they give you a loan. One of the ways they assess your ability to pay back your loan is by ordering your credit score from any credit reporting agency.
If the lenders notice you have a low or bad credit score, it might be more difficult for you to get a mortgage or car loan. Even if you qualify for the loan by some means, you’ll likely have to pay higher interest rates because of your bad credit.
Most credit card issuers and lenders require a credit score that is either ‘good’ or ‘excellent’ before they can approve your loan request. A good credit score means a credit score of 670 and above on a FICO scoring scale. A good credit score, according to VantageScore, is 700 and above.
Less Renting Options
Having a bad credit score can put a damper on your rental application process. It is common knowledge that landlords and property managers often perform credit checks before approving a rental application. However, most people only realize this once it’s too late.
While it is possible to work around getting an apartment to rent with a co-signer or higher security deposit, renting with a good credit score is more reasonable to avoid the hassle.
Renting apartments in most real estate markets will require a minimum 621 credit score. Some property managers and landlords might be stricter and request a higher credit score than 621 before you can get the approval. However, if you have a credit score of 715, you can be assured of your rental approval.
You’ll Pay Higher Insurance Premiums
Most people don’t consider the possibility of paying higher auto insurance premiums when they fall behind on their mortgage or rack up credit card bills.
It might seem unfair that your credit score can impact your auto insurance premiums, but statistics show a correlation between individuals with low credit scores and frequent insurance claims. This is why most insurers will study your credit score to assess your risk.
Moreover, your insurance policy won’t automatically be canceled if you get a credit score below 600, nor will your auto insurance premiums increase. However, you might not be able to get the lowest possible premium rates.
Loss of Career Opportunities
Most importantly, having good credit plays an important role in getting your dream job. In most states of the US, potential employers are allowed to pull your credit report and assess how reliable and responsible you are.
If your potential employer finds patterns of late bill payments, defaulted loans, and mortgages, it can signal to them that you are irresponsible and unreliable with finances. However, remember that no employer will pull your credit report without your permission.
Furthermore, potential candidates with a poor financial history could raise red flags for the company. They might be perceived as having a higher likelihood of fraud, especially in a company that handles money directly.
You’ll Get Higher Interest Rates
Getting approved for a loan with bad credit doesn’t mean you are off the hook. A bad or low credit score indicates to lenders that you might be unable to repay your loan on time and in full. Lenders will often charge you ridiculously high-interest rates to cover the future loss to prevent any loss when you default on your loan.
Paying For Security Deposits on Your Utility or Cable
Before any utility or cable company can set up your account, they must assess your credit report, especially your payment history. Having bad credit will often make this setup more difficult, and you’ll have to pay a security deposit before you sign up to act as insurance if you fail to pay your utility or cable bill.
More Expensive Auto Loans
Your credit history impacts your ability to get an auto loan and the rates that come with the loan. A strong credit score of 715 can get you an interest rate as low as 4.2%. Applying for an auto loan with a 621 credit score will get you an interest rate as high as 20%.
How Can You Fix Bad Credit
Having bad credit can be challenging in many ways, but it doesn’t define you and isn’t permanent. Below are some ways you can fix your bad credit.
Review Your Credit Reports Often and Correct Any Errors
One of the first things you need to do when you want to fix your credit is to review it for any errors that might have caused the bad credit. Look for any incorrect information like late payments, accounts you’ve not opened, or paid debts that are listed as delinquents. You can dispute any of this incorrect info directly with any of the credit reporting agencies. Check for any negative information that isn’t supposed to be there since it can stay on your reports for more than seven years.
Consider Credit Repair Software
Credit repair software is a hybrid of DIY and Professional credit repair, combining the free services of DIY credit repair and professional credit repair services. An example of credit repair software is the CreditUp Club’s Software.
CreditUp Club’s software offers advanced DIY credit repair software services that allow you to enjoy the cost of free DIY credit repair and the professionalism that comes with professional credit repair. You can quickly get the dispute letters you need to send to the credit bureaus in minutes. With CreditUp Club’s software being one of the best credit repair software for professionals and beginners, you can be assured of a seamless credit repair experience.
Pay Each Bill On-Time
Bill payments are the most important step when fixing or improving your credit. These include loan, utility, cable, and credit card bills. Any late or missed payments get reported to the credit bureaus, and this can cause a dip in your credit scores. Thus, you must ensure your bills are paid on time and consistently if you want a good credit score.
If you are too busy to make your payment appointments, you can contact your service provider, credit card issuer, or lender to set up an automatic payment plan.
Final Summary
The cost of bad credit is more severe than you might think. It can make access to cable and utility difficult and expensive. However, there are ways you can fix your credit score and improve your credit score. With a good credit score, you’ll be able to make many financial decisions without spending extra money or resources.
Take a look at this article if you need help understanding how bad credit will hinder your personal and financial life. At CreditUp Club, we take your credit repair journey personally. Our free services ensure that any inaccurate items on your credit report are investigated promptly and verifiable.
