There’s a lot of advice that tells us to avoid getting bad credit at all costs (pun intended). And while it’s all good advice, we are more likely to be compelled to follow suit when we are made aware of the reason behind the guidance that’s being offered to us. After all, as thinkers, we aren’t simply beholden to the words of those who are perceived to know more than we do.
So, first off, for those who are new to the world of finance and credit, what exactly is a bad credit score and how do you get it?
According to this article:
“Bad credit is a description of a person or a company’s predicted inability to repay a debt on time and in full. It is based on the individual or company’s past history of paying off debt and related personal finance factors.”
Borrowers are evaluated through their credit history and how they have been able to pay off their debts in the past. Borrowers are then represented by a rating (or score) that is indicative of their credit risk, meaning how likely the lenders are or aren’t to lose their money by lending it to the borrower.
So, How Does A Bad Credit Score Affect You?
You Could Be Denied a Line of Credit
When you have a low credit score, you are essentially marked as a high-risk borrower. As an effect, lenders may not want to loan you money because there’s a high probability that you’d be defaulting on your payments, which is bad for their business.
However, this doesn’t necessarily mean that you’re going to be completely unable to apply for a loan. There are many easy ways to get a loan, even with bad credit. You might even want to consider contacting this company that provides auto title loans in Long Beach.
Less Favorable Interest Rates and Terms
On the off-chance that you’re going to get a loan approved despite your bad credit, you’re going to be given higher-than-usual interest rates as well as shorter payment terms (although, this depends on what your lender decides to do). What’s more is that you’re not going to have a lot of bargaining power because you’re not going to have a lot of credibility.
This effect also applies to your car insurance, where you’re also likely to be given higher interest rates.
A Bad Credit Score May Also Affect Your Job Application
Under the Fair Credit Reporting Act of 1970, it is legal for a future employer to review your credit report with your written approval. Even if they don’t check your credit score, the information contained within your credit report is enough to represent whether or not you’re able to handle financial responsibilities. Hiring managers will often use this information to assess your application.
And while all of this sounds dire, you shouldn’t be completely discouraged. There are many articles illustrating some of the best ways to establish good credit, and there are ways to improve your credit score rating. The main takeaway here is to use your money responsibly. Proper budgeting is the best way to buttress yourself against the risk of missing out on payments and getting a bad credit score.