Disadvantages of Having a Low Credit Score

Disadvantages of Having a Low Credit Score

From David Lowe

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Having bad credit can be tough, given the disadvantages it entails. Some people might not give their credit score much thought, yet it can affect their capacity to obtain a loan, ability to get a good insurance deal, and even qualification to secure an employment. 

Your credit score will get dragged down if you frequently miss payments on loans or make late payments on bills. Read this blog article to learn how crucial it is to take care of your credit health and how having bad credit can negatively affect your financial life.

Difficulty Getting a Loan

It is a standard procedure for lenders to evaluate your qualifications before approving your loan application. Of course, your credit score is a primary factor in such an assessment. Your payment history and loan balances are vital information that will determine your credit score. FICO and VantageScore use credit scoring models with those variables. 

A low credit score will give you a hard time applying for a mortgage, auto loan, or credit card. Well, let us say your loan application is accepted. Still you will pay a higher interest rate for the loan. Nowadays, many lenders demand "good" to "excellent" credit scores from their applicants.

Your FICO credit rating must be at least 620 if you want to obtain a traditional mortgage for a home purchase. Your credit score must be at least 500 to qualify for an FHA mortgage; nevertheless, you must put down 10% of the purchase price and pay for mortgage insurance, raising the total cost of your loan. However, you can go for Edmonton loans for bad credit

Expensive Insurance Premiums

Your credit score can be negatively impacted by accumulating credit card debt or missing loan payments. If this is the case, you will have to pay a higher premium when you get an auto insurance. This reality is hard to face, but it is what it is if you have a poor credit score. 

According to research, low creditworthiness and the likelihood that drivers will file an insurance claim to the insurance company are correlated. In 2019, a company called The Zebra that compares insurance quotes stated that drivers with bad credit had to pay twice as much for insurance as those with fair to exceptional credit ratings. 

Complying with a Deposit Requirement When Applying for Utilities

If your credit rating is bad, expect that you will have to comply with extra requirements registering an account with utility companies. For example, clients with poor credit need to pay deposits before they can open an account. This deposit acts as a guarantee in the event that you fail to pay your bill. 

If your credit reports contain red flags, even getting a subscription to a mobile provider will be a challenge. You will need to pay a deposit or use a prepaid plan in this case. Having bad credit will make it difficult to take advantage of sales or discounts on popular phones.

Trouble Finding a Home to Rent

If you believe that bad credit will only be disadvantageous to homeowners, reconsider your point of view because it will also affect people looking for a house to rent. This is because before allowing you to rent a property, landlords and property managers will check your credit score, which will determine whether or not your rental application will get approved. 

Having late payments or defaults on your credit reports will give you a hard time finding a rental property. As a solution to this problem, you will need to increase the security deposit or look for a cosigner. 

Hard Time Getting a Job

Looking for a job to earn a living could be a challenge if your credit score is not good. Some employers will check your credit when you apply for a job.  

The majority of the firms (71%) surveyed by CareerBuilder in 2016 said they conduct background checks on new hires, while the remaining employers (29%) said they also run credit assessments as part of the hiring process.

Your ability to manage your finances will reflect in your credit, and employers today evaluate job candidates' credit histories before hiring them. A credit assessment is crucial for any administrative position or role that involves handling money. Therefore, never consider your credit as a second thought, especially if you are looking for employment. 

Final Thoughts

Never make the mistake of believing that your credit score is merely a number because having low credit may affect various aspects of your life significantly. It is critical you keep a solid credit score because lenders, utility companies, insurance firms, landlords, and employers use it to determine your ability to pay your financial obligations. See to it that you  pay your bills, credit cards, and loans promptly.

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