Effects of Having a Bad Credit Score

A bad credit score is more than just a lower number in your credit report. The consequences of having a poor credit may cause you a lot of trouble than you think. Many businesses today, whether it is financial institutions or not, value the credit report of an individual. So, it is necessary to exert effort in increasing your credit score.



We compiled the negative effects of bad credit you should be aware of.

High interest rates
Many lenders and other financial institutions review the credit profile of an individual who are applying for a loan. The credit history reflects how a person manages his/her finances. Therefore, it is essential to lending companies.

Whether you are applying for an auto, business, or personal loan, you will likely to get a higher interest rate if you have a poor credit record. Lending companies see this as a risky business. Fortunately, they can still approve your loan but ask you to repay the loan with a higher interest rate.

Having to pay a higher interest rate will hinder you to save money since you will pay more throughout the period of your loan.

Denied loan application
As mentioned above, many banks and lenders see poor credit score as high risk to their business. So, apart from charging a higher interest rate, they can also deny a loan application.

Make sure that when you are applying for a loan, check first your credit profile and see if there are any discrepancies. If you have a poor credit profile, try to improve it first before applying so you can avoid being denied. Denied loan applications will also have an effect to your future loan applications.

Higher insurance premium
Aside from credit card and loan providers, credit profiles are also important to insurance companies. Before accepting your policy application, insurers check applicant’s background, such as medical and financial background. This may include the credit profile of an individual. For them, a lower credit score is linked with a higher insurance claim.

Difficulty in getting an apartment
Apart from financial institutions, many landlords consider the credit profile of potential tenants in approving or denying rental application. Hence, you will have difficulty getting approved for an apartment in case you have a bad credit score. On the flip side, you can still find landlords who will accept your rental application. However, they will ask you to pay a higher security deposit or charge you with a higher monthly rental.

Don’t know what to do with bad credit? There are many effective ways on how to prevent having one. Here are some helpful tips on how you can maintain a good credit history:

• Do not max out your credit card limit
• Pay your bills and credit card balances on time
• Create a monthly budget
• Build healthy savings
• Think before you make new purchases
• Do not apply for multiple loans
• Have one or two credit cards only
• Pay down debt
• Opt for a secured card
• Check your credit report regularly