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How Does Bad Credit Affect You?

Non-payment of bills and other debts can have an adverse effect on an individual’s credit. It is important to note that a good credit score is one of the most important aspects of the financial life of a person. A lot of businesses tend to make judgments of an individual on the basis of his/her credit score, and hence having a bad credit score can throw up a lot of challenges, ranging from difficulties in finding a place to live to get a job or even starting a business.

Listed below are some ways in which bad credit can affect you:

  • Non-approval of loan and credit applications: Some amount of risk is acceptable for most lenders. However, when the credit score is very low then creditors generally tend to not approve any loan. Thus, people with low credit often find that their loan and credit applications get denied.
  • High rate of interest on loans and credit cards: A credit score is considered to be reflective of the risk of a person defaulting on loans, credit card bills, or other debts. Thus, a low credit score is indicative of a high risk of non-payment of debts. Creditors make people with low credit pay for such increased risk by levying a higher rate of interest on all approved loans, credit cards, etc.
  • Problems in finding a home: The credit score is checked by most landlords on all applications for rental housing. People with bad credit will therefore always find it difficult to rent a house or apartment. Those who are able to find rental accommodation despite a bad credit will find that they end up paying a ‘higher than normal’ security deposit to the landlord.
  • Problems in getting a mobile phone contract: Credit scores are checked by mobile phone companies when verifying applications for cell phone service contracts. Applications of people with a low credit score are often rejected or may be accepted with higher monthly payments and/or a larger upfront payment.
  • Higher deposits for varied utilities: The credit score is also checked by electricity, cable, and other utility companies when processing an application. Individuals with low credit may be asked to pay a higher security deposit to avail of varied utilities, even if they have a history of timely payment of utility bills.
  • Problems in getting a job: A good credit score is paramount when seeking employment in certain sectors like the financial industry or jobs in upper management. People with negative markings on their credit report, particularly items like bankruptcy, high levels of debt, and/or outstanding bills, may find that they do not get hired for a job that they are completely qualified for. It may be noted that the credit report, and not the credit score, is verified by most employers. They do not look for low credit, but for things that could have an adverse effect on an individual’s job performance.
  • Problems in buying a car, higher insurance premiums: A bad credit may cause banks to deny loan applications for buying a car. In case the car loan gets approved despite low credit, then such loans will mostly come with higher interest rates and higher monthly payments.
    • Insurance companies are of the opinion that low credit is associated with higher instances of claims. Hence, a higher premium is charged by insurers on individuals with bad credit irrespective of their history of claims made.
  • Problems in starting a business: Most startups require funds from banks as loans so that they can be launched. If you have bad credit, then the amount of funds that can avail as loans for starting a new business can be limited, or your loan application may be denied. This would be the case even if your idea for the new business is innovative with a solid foundation and verified data supportive of the success of the business plan.

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