Most people are aware that their credit score exists and that it is an important indicator of their financial health. However, there are many misconceptions about what a bad credit score really means and the impact that it can have on people’s lives. Below are just some of the realities of having a low credit score.
Difficulty Getting A Mortgage
A bad credit score will affect your entire financial life, and that includes your mortgage. When you apply for a mortgage, the mortgage lender will check your credit history and look at your credit score. A low credit score will determine the mortgage rates you’re offered. It will also impact the type of mortgage that you can even apply for.
The higher your credit score is, the better the mortgage rates available to you. If you know that you are going to be applying for a mortgage in the near future, it is definitely worth getting a copy of your credit report and having a look at it. Look for both the overall score and the breakdown of where your debts currently lie.
Fortunately, there are brokers like new Horizons who can help those with a bad credit score. You can find out more details here about how New Horizons helps clients to secure loans for bad credit scores.
Higher Interest Rates On Loans
It isn’t just mortgages that people with bad credit scores often struggle with. You will find that any kind of loan comes with more strings than usual if your credit score is low. These extra strings might come in the form of higher deposits or higher interest rates. In either case, having a low credit score will continue to cost you money as time goes on.
Conversely, consumers that have good credit scores are able to secure the lowest interest rates available and the best possible terms on any loans that they take out. It doesn’t matter whether you are looking for a loan to start a business or a loan to fund an essential purchase or repair, the terms are always going to be worse for those that have the lowest credit scores
Difficulty Getting Approved For Housing
A low credit score can also work against you when you are applying for housing. Many landlords will conduct a basic background check to find out a bit about their tenants. This often includes a check of your credit score. If your score is low, some landlords might not want to let to you at all, while others will want some guarantees in place.
A low credit score doesn’t necessarily mean that you won’t be able to find any housing. If you are able to provide a reference letter from a previous landlord or you get a guarantor to co-sign your lease, many landlords will be willing to overlook a low credit score.
Trouble Finding Employment In The Finance Industry
If you aspire to one day work in the financial services industry, then a low credit score can preclude you from certain jobs. Even outside the finance industry, there are some upper management positions that will be inaccessible to anyone with a low credit score.
Financial institutions are going to be wary about hiring anyone with a low credit score and a poor track record when it comes to managing money. This makes sense when you think about it. After all, you don’t want to hire people with poor judgement who will be responsible for decision making in financial institutions.
Higher Insurance Premiums
Whenever you apply for insurance with bad credit, you can expect to pay higher premiums. Consider car insurance as an example. The higher your credit score is, the lower the premiums will be. There are numerous factors that go into determining the terms offered to an insurance applicant; your credit score is just one of them. Your credit score might seem unrelated to the risk that you present as a driver, but for insurance companies, it is an important metric for establishing your level of risk.
From the perspective of the insurance companies, someone with a high credit score is less likely to represent a credit risk than someone with a low score. Your insurance provider might also consider that if you have had difficulties paying your debts in the past, you might find it difficult to keep up with your insurance payments.
Having a bad credit score has numerous negative impacts on your life. Whenever you need to secure a loan or other forms of financing, your credit history will determine what is available to you and under what terms. Most of us could benefit substantially from taking steps to improve our credit scores. The impacts we have outlined above are just some of the negative effects of a low credit score.