If you make another big purchase against your credit card and get close to the max, you may not realize the negative impact that activity will have on your credit score. The same goes for the odd late payment on your water cost or car loan payment. Increasing debt that is not paid back on time or in full can have a huge impact on your creditworthiness.
Bad credit can have more negative consequences than you might think
What's so special about a low credit score? Today, many institutions – from loan officers to corporations to insurance companies – check your creditworthiness before taking a step. You might find that your low credit score puts you in a position where you cannot get approved for a loan, get a job, or even find an apartment. Here are 6 harmful side effects of bad credit.
1. Your loan applications may not be approved
Lenders and creditors see borrowers with bad credit as high risk, which means they are less inclined to lend you the money you need. Whether you are looking for a mortgage to buy a home or a loan to finance a new car, your loan applications may be denied.
2. They are subject to high interest rates
When you are approved for a loan, you will most likely face a really high interest rate. Since lenders view those with bad credit as a risky business, you have to pay for it by adding a sky-high interest rate to your loan. The higher your interest rate on your loan, the more you will pay for interest in the long run, not the principle.
3. They are subject to higher insurance premiums
Even insurance companies check background credit scores. Their claim is that poorer credit scores are associated with an increased number of claims filed. This theory causes insurers to check a person's credit history. If they find that you have a credit score that is below par, you will most likely be charged a higher premium regardless of how many claims you actually made.
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4. It might be more difficult to find a job
Many jobs – especially senior management or in the finance industry – have certain criteria that potential employees must meet, including good credit. It may be a lot harder to find the job you want due to your poor credit rating, especially if you have exorbitant debts or even a bankruptcy history.
5. Starting your own business could be a challenge
Not only will it be more difficult to find a job with a low credit score, but starting your own business can be a challenge. Many new businesses need bank loan assistance to get started. With a low credit score, banks are less likely to approve your loan application even if your business idea is great.
6. You find it harder to get a permit to live in
Landlords also check the creditworthiness of potential tenants. If you have bad credit, the landlord may be less inclined to approve a lease and instead hand it over to a tenant with good credit. Like insurance companies and banks, landlords assume that those with poorer credit are more likely to default on monthly payments, exposing them to higher financial risk.
The consequences of bad credit can be much more extensive than you might have thought. Your best bet is to do whatever you can to get your credit back in shape, which is a lot easier with effective tools like those from Mint.com.
You can get your finances in order quickly and easily, with Mint handling all of the organization and categorization of your expenses on your behalf. When you can see where all of your spending is going, you can make better spending decisions that will only have a positive impact on your creditworthiness.
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