The consequence of having a Bad Credit Score is not only restricted to having difficulty in finding loan approvals. There is a lot more than bad credit borrowers have to suffer, such as high-interest loans, low loan amounts, unavailability of certain financial products, difficulty renting an apartment, etc.
Bad credit: What does it mean?
Credit scores look like a simple three-digit combination. But they impact your life in a significant way! A lender reviews your credit health when you apply for a credit. A bad score could result in disapproval or an extremely high-interest rate. A poor credit score means a score bracket of 300 to 579. A score less than 579 is considered bad.
If you are thinking how do I have bad credit, then be informed that it results from a poor financial history. This score denotes that you did not repay your debts responsibly. The most common reasons for bad credit history include missing or delaying repayments, overusing your credit card, errors in the credit report, applying for several new loans, not diversifying your credit, etc.
Side Effects of Bad Credit
Though a few changes like credit monitoring and payment consistency can help you push the score higher, knowing some of the biggest side effects of bad credit is important for credit improvement.
1. Trouble getting a loan
This is one of the most common side effects of having a bad credit score. You will face trouble getting a car or home loan, mortgage, credit card, etc. The lender considers you as a loan risk. This is because the lenders do not find your credit history encouraging and doubt you will make loan repayment on time.
2. Higher Interest Rate
Even if you qualify for the loan, you must bear a higher interest rate. The lenders see people with poor credit scores as a “default risk.” The higher the interest rate on the loan, the more you will pay the interest rather than the principal.
3. Higher Insurance Premiume
Most insurance companies check CIBIL scores to determine your premium. It is believed that those who have a bad credit score will make a greater number of claims. Hence, when insurance providers find that a person’s credit score is less than par, they charge a high premium.
4. Daily life Interruptions
Bad credit can impact your daily life in the following ways:
- With bad credit, renting is not easy. Most rental companies or landlords run a credit check. Finding a low score may discourage them from renting their apartment to you.
- Utility companies may also deny services to you.
- You don’t get best loan offers and rewarding credit card offers with low credit scores like introductory discounts, cash-back incentives, etc.
- Also, many employers run a credit bureau score check before selecting the candidate. A bad credit can prevent you from getting hired for your dream job.
- When your credit score is low, you will get several reminder calls from the lenders to make the payment. You might also get legal notices, making your daily life chaotic.
5. Difficulty Stepping into Business
The effects of having bad credit report are much more extensive than you thought! Not only getting a job with a low credit score is a challenge, you will have a tough time starting your own business. New startups often seek bank loans to start their business operations. Those with low credit scores do not get their loan application approved easily, even when they have great business acumen or ideas.
6. Increased Security deposits
If you have bad credit, the lenders expect you to pay more security deposit than others. This is because they think that you will not make payments on time, and to protect themselves from financial losses, they ask for higher security deposits.
Wrapping up
Even when you have poor credit, the good news is that you can rebuild it. Start budgeting, paying your debts, building a positive payment track, lowering your credit utilization ratio, disputing errors in the credit report, etc. to boost your credit score. Speaking to your credit counselling company is a great idea. Due Factory helps people with low credit scores. We support you, advise you, and devise ways for a smoother and more confident financial future.
FAQ
Q1. What is a bad credit score?
Ans. A bad credit score means a score bracket of 300 to 579. A score less than 579 is considered bad.
Q2. Does a bad credit score affect my loan or credit card interest rate?
Ans. Individuals with low credit scores need to pay higher interest rates on loans and credit cards. Since lenders view them as a risk, they charge more interest to compensate.
Q3. Does having bad credit also mean higher insurance premiums?
Ans. Yes, insurance companies also consider credit scores to decide premium amounts. A bad credit history can lead to higher insurance premiums.
Q4. Do I have a bad score due to my inconsistent paying habits?
Ans. The payment history plays a key role in determining credit score. Delayed or missed payments can impact your score considerably. For credit building, pay your dues on time.
Q5. What are the most common side effects of having bad credit?
Ans. Bad credit leads to difficulty in securing loans and getting favorable interest rates. Also, you might have to pay a high security deposit and more rental. A low credit score also prevents you from availing certain financial products or services like premium credit cards, personal loans, mortgages, etc.
Q6. Can I rebuild a poor credit history?
Ans. Yes, you can rebuild a poor credit history. Ensure to consistently make payments, lower your debt amount, practice debt consolidation, avoid new credit, keep credit utilization low, etc. You will observe credit improvement within a few months or a year. You can also contact Due Factory for the best advice and credit repair support.