Your credit score indicates your trustworthiness using a three-digit number system. It’s based on your payment history, the amount of debt you owe, and the length of your credit history. The higher your score, the more likely you will be approved for a loan and receive a lower interest rate. But a low credit score can lead to many unanticipated problems. Here are a few ways a bad credit score can affect you.
- You may be denied a loan or credit card.
If you have bad credit, you may not be able to get approved for a loan at all. And even if you are approved, you’ll likely be offered a high-interest rate loan. This can make it difficult to afford the payments and cost you more in the long run.
For example, let’s say you want to apply for an FHA loan. You’ll need a credit score of at least 580 to qualify. But if your credit score is below 580, you’ll need a 10% down payment. That’s a lot of money that you may not have available. Because of this, you may decide to wait and improve your credit score before applying for a loan.
- You may have to pay higher interest rates.
You’ll likely be offered a loan with a higher interest rate if you have bad credit. This is because lenders see you as a higher risk. They’re worried that you may not be able to make your payments on time or that you may default on the loan altogether.
Lenders charge higher interest rates to borrowers with bad credit to offset this risk. This can make it more difficult to afford your loan payments and cost you more money in the long run. You can use a loan calculator to see how much extra you’ll pay in interest.
- You may be denied a rental application.
If you’re looking to rent an apartment, landlords may consider your credit score. Landlords often check credit scores to see if you’re responsible enough to make your rent payments on time. If you have bad credit, you may be denied a rental application or be offered a lease with less favorable terms.
If you’re looking to rent an apartment, you may want to check your credit score in advance. This way, you’ll know what to expect and be prepared to explain any blemishes on your credit report. But you can also try to find a landlord who doesn’t check credit scores.
- You may be denied insurance.
Some insurers use credit-based insurance scores to help determine your premiums. If you have bad credit, you may be seen as a high-risk customer and be offered a policy with higher premiums. You may even be denied coverage altogether.
Ask if the company uses credit-based insurance scores if you’re shopping for insurance. If they do, you may want to shop around for a policy with more favorable terms. Some insurers don’t use credit scores to determine premiums, so you may be able to find a better deal.
- You may have trouble getting a job.
More and more employers are running credit checks on job applicants. They’re looking for red flags that may indicate financial instability or irresponsibility. If you have bad credit, it may make it more challenging to get a job. Although, some employers don’t consider credit scores when making hiring decisions.
If you’re looking for a job, checking your credit score in advance is a good idea. That way, you can be prepared to explain any negative items on your report. You may also look for employers who don’t run credit checks. They may be more likely to give you a chance regardless of your credit score.
- You may have to pay higher security deposits.
When you sign up for utilities or other services, you may be required to pay a security deposit. This deposit is meant to cover any unpaid bills if you should default on the service. You may be required to pay a higher deposit if you have bad credit. This can make it more challenging to afford the service.
When you’re shopping for utilities or other services, be sure to ask about the security deposit. You may look for providers who don’t require a deposit or have a lower deposit for customers with bad credit. Try to find a provider willing to work with you to establish service.
Bad credit can affect you in many ways. It can make it more challenging to get a loan, rent an apartment, or get a job. You may also have to pay higher interest rates, insurance premiums, or security deposits. But there are ways to overcome bad credit. You can work on improving your credit score or find lenders, landlords, and employers who are willing to work with you. You can improve your financial situation and get back on track with a little effort.