Navigating the world of personal credit is more difficult for some than for others. Even when people are able to raise their credit score, there’s often a learning curve to climb in finding a recovery strategy. There are things that can help your score and things that are sure to hurt it, and knowing the difference can guarantee your financial health or send you into a downward spiral. When you know how bad credit affects your financial life, you can do your best to take the necessary steps to establish and maintain good financial standing with the credit bureaus.
1. Fewer career opportunities
If you’ve ever wondered, “Can you get business loans with bad credit?” you’re not alone. If you want to start a business and want to get business credit, you must first use your own credit. Bad credit can make this very difficult, forcing you to explore more tedious methods of financing your business. Entrepreneurs are not the only ones concerned. Many states allow companies to review a potential employee’s credit report. This means employers can see outstanding balances, student loans, foreclosures, late and missed payments and more.
2. Spend more
If someone with a bad FICO score gets a loan, the interest rates will be significantly higher than those with better credit scores. This means that the cost of the loan will be higher. This would apply to an auto loan, personal loan, or home loan. You’ll also likely pay more for auto and home insurance, since most US insurers can factor your financial habits into their risk assessment. And when it comes to utility companies, you may find that you have to pay a higher deposit when securing connectivity.
3. Delay retirement
Most people look forward to the day when they can retire. But when your credit isn’t good, you’re more likely to retire later than those with better credit. It is difficult to build up wealth and credit simultaneously. To pay less interest, it may be better to consider a balance transfer credit card. This will allow you to pay off your existing debts faster and at a lower cost. Having less debt at retirement age will ensure that retirement is a real option and should not be postponed.
Many property management companies check the credit scores of potential tenants. Typically, they’re looking for a score of 620 or higher. The last thing they want to do is rent to someone who won’t be able to pay the rent on time and consistently. Bad credit holders need a co-signer on their lease, otherwise they will have to pay a higher security deposit.
5. Fewer loan options
Traditional lenders like Visa and Discover are less likely to enter into a financial relationship with people with bad credit. So when you are in a tight spot and need cash up front, you will only have access to predatory lenders like pawnbrokers and payday loans with interest rates that can reach 400% or more.
It’s true that life is a little sweeter for those with good credit, but if bad credit is an issue for you or someone you know, there are ways to take the pressure off your financial life. Knowing the consequences is both an incentive and a deterrent. Be as financially responsible as possible. And don’t be afraid to ask for help in learning responsible, healthy financial habits.