In this modern age, having a good credit score is crucial. It gives you access to better things like premium credit cards, lower insurance rates, and superior loan options. Even though the majority of Americans have a good credit score, there are still many people who are struggling with their credit scores these days.
If you are struggling with your credit score, it is crucial for you to understand its importance and take it seriously. A bad credit score not only takes away all these luxuries from you, but it can also cause other major problems in the long run.
That is why it is strictly recommended that you always pay your bills on time and manage your loans wisely. It doesn’t matter whether your earnings are high or low; if you are managing your finances better, you will never fall into the pit of bad credit.
In order to avoid bad credit, it is crucial for people to understand why they need to avoid it. In this article, I have mentioned a few side-effects of having bad credit that will help you understand its importance. If you weren’t taking your credit ratings seriously before, this would paint a clear picture for you of why you need to do it.
Getting a Loan Becomes a Challenge
When you have a good credit rating, you can get any loan you are eligible for easily. You don’t get high-interest rates, and you have access to different loan packages to choose from.
On the other hand, getting a loan with bad credit is quite difficult. Banks need to make sure that the person who is borrowing the loan will pay them back in time and won’t cause any trouble. To measure your likeliness of returning the loan, they will simply look at your FICO scores. If your FICO scores are low, your chance of loan approval will also drop.
It doesn’t matter whether you are looking for a mortgage, business loan, or car loan; if you have poor FICO scores (below 650), you will have to go through some extra steps or pay higher interest.
Your Insurance Premiums Can Rise
Bad credit plays an important role in insurance scoring. In many states, auto and home insurance companies are allowed to factor in your money spending habits and history while doing a risk assessment.
If your credit score drops, you won’t have to pay expensive premiums immediately. However, it will limit your options, and you won’t be able to get any better rates even when they are available. If you are going to get new insurance with bad credit, then your options will be limited even more.
Credit-based auto insurance is also banned in a few US states. If you live in those states, then you won’t have to worry much about your car insurance, even if you have bad credit. California and Massachusetts are among those states where it is banned.
Fewer Renting Option
One of the major problems bad credit can create for you is limit your renting options. You need a FICO score of 620 on average to qualify for renting a place. It also depends on your landlord because some have more strict rules than others. You might also come across a place where the minimum FICO requirement for renting would be 700.
However, if you have a score lower than 620, you will have a hard time finding a decent place to rent. In such a scenario, you will have to get a roommate or submit a security deposit.
Renting an apartment with a bad credit score is perfectly possible, but it comes with a lot of challenges, and it is not really worth it.
Difficulty Landing a Job
If you are planning to apply for jobs in the future with bad credit, then you will face challenges.
Nowadays, a lot of employees do not only ask for your resume and recommendation letters; they also ask for your financial history. This applies to the kinds of jobs where you have to deal with financials. Your employer wants to know that they are hiring a responsible person who is good at making decisions.
According to a survey conducted by CareerBuilder, more than 70% of employers nowadays run a background check before hiring a new employee. In 30% of the checks, they also take a look at their credit history.
That is why it is highly recommended you maintain a healthy credit score. It not only costs you money by taking away financial privileges, but it also affects your ability to earn.
No More Rewards Credit Cards
If you like holding credit cards that offer great rewards, then it is vital that you maintain a healthy credit score. Credit cards that have premium rewards require high credit scores. People who have relatively higher credit scores than an average person can get cash back incentives and high discounts on certain premium products and services.
It doesn’t matter what kind of credit cards you enjoy using; if you have a bad credit history, you might not be able to enjoy the privileges offered by those credit cards.
Building Wealth Becomes Harder
Having bad credit is not just a phase. If you don’t do anything about your bad credit, you can end up paying for it for years to come.
Bad credit can push towards the endless cycle of paying off high-interest credit cards. It will become hard for you to save money because you will be paying high interest on your credit cards every month
It forces you to put most of your money into getting rid of your debt which is not good for the long term. If you don’t have bad credit, you can put the same investment into something that will benefit you in the long term.
The reason people struggle with bad credit is that it is a cycle that is not easy to leave. If you don’t get out of it, you will be dealing with challenges for the rest of your life. However, improving your credit history isn’t that difficult, and you can do it by following a strict expenditure plan and prioritizing your debts.