These days people do their best to maintain a good credit score or even higher. And why not? A good credit score unlocks the door to premium credit cards, favourable loan products, and better interest rates. On the contrary, a poor credit score will block your access to such benefits. It can make your financial life more challenging in multiple ways leading to delayed retirement. To maintain a good credit score one needs to understand the value of having a decent credit score.
Lets' find out about some of the most common disadvantages of poor credit and what you can do to break this chain:
Mainstream lenders may not choose you
Banks like Discover, Bank of America, and Citi have fastidious standards for deciding the qualification of the borrowers, having a bad credit score may exempt you from traditional loans or credit cards which simply means that you have very limited or negligible access to mainstream funding.In that case, you most likely will resort to less reliable sources such as title loan companies. Do take into account that their APR can be very high ranging from 400% to 700%. Make sure you thoroughly study the fine print.
Unfavourable interest rates on loans
A good credit score not only provides access to reputable banking institutions but it also helps you get the most favourable interest rates on loans. But when you have a lower credit score, your mortgage repayment can increase by $ 275 every month. Usually, a FICO score of 720-750 is considered as ideal for auto loans and home loans.
Increased insurance premiums
Although a bad credit score does not lead to an increase in your premium, nor does it prevent your access to the policy unless it goes down below 600. However, if you have a bad credit score, you may not be eligible for the lowest possible rates.
Limit career opportunities
If you are someone with good credit habits, your chances of ascending the career ladder increase many folds. In various parts of the world, employers are allowed to look into the consumer credit reports before making the hiring decision, based on the report, they can even make promotion and reassigning decisions.
Apparently, the employer won't check your exact credit score, but with your signed consent, they can study your credit report to garner information on the certain factors such as your outstanding balances student loans, auto loans, missed or late payments, or bankruptcies.
No access to the Best Rewards Credit Cards
You are offered the best rewards credit cards only when you have the highest credit scores. You can enjoy amazing offers and cash-back incentives. Moreover, you can get special invitations to exclusive pre-sale events, concerts, and have instant access to various other kinds of perks, benefits, deals, and services.
Renting an apartment will become a difficult task
To qualify for an apartment, you are required to have a minimum score of 620. There are property management companies and landlords with strict policies who may want you to have a credit score of 700 or above to give you an apartment on rent. Though it is not impossible to rent an apartment with a bad credit score, it can surely be many times difficult.
Breaking the Chain of Bad Credit
The only person responsible for really poor credit is you. You may feel guilty, worried, or even embarrassed. There are many people who find themselves unable to come out of the bad credit situation. The simple reason behind this dilemma is not their negligence, it is mainly about getting stuck in the chain or a cycle. Credit is all about self-policing or self-supervision where one small mistake can lead to punishable consequences.
Your one delayed payment can cling to your credit report for no less than seven years. Thus, it is very difficult to start all over again.
How to get out of the debt?
The first and foremost step to break the chain of bad credit is through hitting the restart button. You can always consult a nonprofit credit counselor who works with a debt attorney to file for bankruptcy. Try to stay out of the credit activity for many years to come.
You will have to remove credit cards out of the picture for some time. However, there are cards available for people with a bad credit score in the market on punitive terms with higher than average APR and greater security deposit.
Improve your credit score for the future
It is certainly not impossible to improve a bad credit score. The blot of mismanagement can vanish after seven years and ten years in case of bankruptcy.
By paying your bills on time and refraining from any further debt, you can considerably increase your credit score. Through making the minimum payment every month, you can improve your history of timely payments and reduce your debt-to-credit ratio.
Once you start using your credit cards again, strictly adhere to all the terms and agreements. Do not make the mistake of thinking that you will not get penalized for paying nearly enough to cover the minimum payment or missing the due date just by a few days. Every action, small or big, counts.
If you avoid making such mistakes, you certainly will end up with a better credit score. You are just seven years away from an ideal credit.
Conclusion
Always remember, a bad credit score can have more severe consequences than you can imagine. Above all, do your best to maintain a good credit score for a smooth financial life. However, if you have a bad credit score, then do take the aforementioned points into consideration and do not get dejected. You can learn from your mistake and can always start afresh.