How a Bad Credit Score Can Affect You
As you make purchase after purchase with your credit card, and inch towards making it out, you may not realize the negative impact it can have on your credit score. The same can be said of making the odd late payment on your car loan or hydro bill. Mounting debt that isn’t paid off in a timely manner can lead to more trouble than you may think. Here are some damaging side effects of having a poor credit score.
You May Not Get Approval for Your Loan Applications
Individuals with a low credit score are considered to be “high risk” by creditors and lenders. This means they’ll be less inclined to lend you the money you need. Whether you’re looking to get a loan to finance a new car, or a mortgage for a new home – you’re more likely to get your application rejected if you have a poor credit score.
Higher Interest Rates
Getting approval for a loan application is generally considered to be a victory. However, it can soon turn into a defeat if the approval is accompanied by restrictive terms or a huge interest rate. While every lender is different, most of them are shrewd and cagey because of the complex and varying nature of internal borrower evaluations. However, most lenders have an upfront policy of the lower the credit score, the higher the interest rate.
The impact of a higher interest rate can be larger than you think. For instance, if you have a poor credit score, your mortgage lender could require a down payment of 20% instead of the 5% they would ask if you were a less risky borrower. This means that you’ll have to make an initial payment of $60,000 instead of the $15,000 you would have made if you had a favorable credit score.
Difficulty in Getting a Job
While there’s little to no correlation between an employee’s credit history and their job performance, it still doesn’t stop employers from going through the credit history of applicants. According to a survey by Demos— a think tank that focuses on consumer finance issues— one in four job applicants have had their credit run, and one in seven has been advised that they were denied a job due to poor credit.