The Effects of Bad Credit
Usually, in the loaning system, lenders depend on credit scores, which is a numerical representation on the credit-worthiness of an individual, which is based on a level analysis of a person’s credit files. 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.
Hard to borrow 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. If your score is 698 and the qualified score is 700, it just shows that even if your score is almost close to the cut off score level, you will have difficulty borrowing for a new loan, because 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. The interest rate difference can mean an additional of 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.
Effects on your housing situation
If you’re applying for an apartment lease and your credit score is low, the landlord will likely demand for a pre-lease credit check, but this depends on the kind of apartment you intend to rent, because well-kept, modern apartments in a desirable neighborhood will require a higher credit standards compare to substandard dwelling units in undesirable areas, where landlords may be lenient to the credit score.
Your credit status can be a part requirement in job applications by some companies, most especially on positions that require a security clearance. Even if the practice of hiring an applicant requires a credit status check is banned or restricted in a handful of states in the US, still it doesn’t stop employers from doing the checking rounds because ideally an employee can work efficiently if there are no distressing factors, which he/she is carrying, one of which is a bad credit.
Stress on personal relationships
The status of your credit score and your credit overall profile can also affect your personal relationship and family life in a manner when you and your spouse will apply for either a home loan or auto loan, since lenders look at both you and your spouse’s credit 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.