The Costs of Bad Credit
In financing, the numerical representation of an individual’s credit value based on a degree of analysis of the individual’s credit profile is referred to as a credit score. Financing companies produce a credit score, ranging from 300 to 850 with 850 as the highest score, for a borrower with a Social Security number using data from the person’s previous credit history and lenders use a credit score to evaluate the probability that a person repays his debts. Credit scores have great influencing impact on a borrower’s personal finances, as well as affecting your capacity to borrow, such that if you’re not performing well with your credit score, which means you’ve got bad credit, the following effects are bound to impact you.
Difficulty borrowing money
Getting a low credit score will directly affect your likelihood of securing approval for a new loan or a credit application or less likely find a willing lender. Even if your score is almost close to the cut off score level, for example your score is 698 and the qualified score is 700, many lenders don’t make loans where the credit score falls below the accepted level.
Lower credit scores translate to higher interest rates when your loan is approved and additional restrictive terms are included in the loan agreement, which proves to show that money lenders and financing companies are relying a lot on a borrower’s credit scores. An interest rate difference can add tens of thousands of dollars to the total cost of a mortgage, depending on how the loan is structured, but the same principle applies to auto loans, home improvement loans, personal loans, and credit cards.
Credit score rating is subject to the kind of apartment unit that is open for lease, such that if you’re applying to rent an apartment and your credit score is high, landlords can accommodate you to well-kept, modern apartments in a desirable neighborhood, but if your credit score is low, landlords may be lenient to the credit score but will offer you a substandard dwelling unit in an undesirable area and, at the same time, the landlord will most likely require a pre-lease credit check.
Trouble getting a job
There is a high probability of employers to check on the credit status of prospective employees during the hiring process, which shows that the credit score level of an applicant can be a contributory factor to his future employment, most especially with positions that need a security clearance. Ideally, an employee can work efficiently if there are no distressing factors, which he/she is carrying, one of which is a bad credit, and that is why employers check on the credit condition of an applicant before hiring, in which this practice is actually banned or restricted in a handful of states in the US.
Stress on personal relationships
Your credit score together with your overall credit profile can break or not your family life, as well as your personal relationship, since both you and your spouse’s credit profiles can affect your ability to qualify for an auto or home loan that you’re applying together, as lenders look at both profiles and assess your household’s overall credit risk. A higher interest rate or a larger down payment will be required, if one of you falls lower in the credit qualification, and if you fall behind payments, you not only suffer the consequences of a low credit card score, but a strain in your family relationship is also gradually developing as an outcome of stress from being confronted with these financial issues.