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. A credit score, ranging from 300 to 850 with 850 as the highest score, of a borrower is produced by financing companies with a Social Security number using data from the person’s previous credit history, while 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.
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.
Confronted with higher rates when you borrow
When a borrower’s credit score is a few points way below the qualified score, his chances of borrowing may be slim but if he gets his loan approved, he will be confronted with a higher rate and with additional restrictive terms from the lenders or financing institutions, which shows that credit scores are highly valued. Depending on how the loan is structured, but the higher rate difference can cost you tens of thousands of dollars to the total cost of a mortgage, and the same principle treatment is applied to auto loans, home improvement loans, personal loans, and credit cards.
The impact on your housing condition
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. In a handful of states in the US, the practice of a credit status check on an applicant is banned or restricted, but this 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.
There is a strong impact on how your credit status can affect your family relationship, especially in situations when you’re applying for either a home loan or an auto loan, because lenders look at both you and your spouse’s credit profiles and assess your household’s overall credit risk. If one of you falls lower in the credit qualification, most likely a higher interest rate or a larger down payment will be required 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.