A history of poor credit can have wider-ranging consequences than you may think. The good news is, bad credit doesn’t have to last forever. Let’s take a closer look at what bad credit is and how it can affect you in ways you may not have considered.
What is bad credit?
Credit itself is simply making a purchase or borrowing money with the agreement that you’ll pay later. Bad credit will typically arise if you do not repay these debts according to your borrowing agreement. This is reflected in a low credit score. In general, credit scores are used to determine how likely a consumer is to experience credit delinquency. This means that the lower your score, the higher chance there is that you will miss a payment.
Bad credit can affect many areas of your life:
A poor credit history and rating may make some lenders reluctant to do business with you. Below are some of the ways that this can affect you.
Fewer credit card options and higher interest rates
If you have bad credit you might have trouble getting approved for a credit card, and you will most likely pay higher interest if you do get one. There are cards available for people with lower credit scores, but they can have interest rates as high as 29%, compared with the average credit card interest rate of 17%.
Higher insurance premiums
When purchasing insurance, you will have an insurance score that is similar to a credit score (and based on much of the same information as your credit score). Your insurance score is affected by your credit history, as it considers your payment history, outstanding debt, credit history length, new credit and more. Ultimately, bad[MOU1] credit can lead to higher insurance premiums.
More expensive car loans
Your credit history will play a role in whether you can get approved for an auto loan, as well as what kind of rates you’ll receive. If you have strong credit, you may be able to find auto loan offers with low interest rates, but if you have a low credit score, you may be facing high interest rates, which leads to a higher monthly payment.
Difficulty getting a mortgage or renting an apartment
Mortgage applicants with poor credit histories are more likely to default on their mortgage, and having a low credit score can make it difficult to find a lender to underwrite your loan. Additionally, landlords will run a credit check on potential tenants during the application process in order to gauge whether or not an applicant has a strong financial history and how likely they are to pay their rent on time each month. The payment history portion of your credit report will likely impact their decision.
Unsuccessful job applications
Some employers review a candidates’ credit history during the application process in order to learn how reliable and responsible the person is. Seeing patterns of late or missed payments or a history of defaulting on loans can be a red flag to potential employers that you won’t be a responsible, reliable employee.
While bad credit can make it more challenging to access credit cards, loans and mortgages — and might even affect your job prospects — there are plenty of ways to build your credit score and improve your credit history. At Blackhawk Bank, our bankers are experts in guiding people towards building and repairing their credit. Stop in to one of our branches and speak with a Personal Banker about moving towards that great credit score!
Sources: investopedia.com; bankrate.com