A credit score is a three-digit numerical score that denotes the likelihood of repayment of a loan. It is based on data from your previous credit transactions. It also takes account of any state or federal tax liens or legal judgments against you. Your credit score determines whether banks or lenders are willing to approve your request for credit cards or loans. Bad credit implies that you have failed to make timely repayments for your previous credit agreements. It could also mean that you have not paid back your credit at all. This makes it difficult to get approval for new credit. Here are some other effects that a bad credit score can have on you:
- Credit cards and loans with higher interest Bad credit indicates that you are likely to default on your loan or credit card repayments. It makes you appear as an unsafe borrower. In case lenders take the risk of approving your loan, they are likely to charge you for their risk in the form of an elevated interest rate. If you get loan approval even with a bad credit score, you will end up paying more money as interest than you otherwise would with a better credit score. The larger the loan amount, the more the interest.
- Difficulty getting approved for an apartment Landlords conduct a thorough check of rental applications and the potential tenant before approving them. This also includes checking credit scores. Many people have their rental applications denied due to poor credit scores. This rejection follows a similar logic to that of the lending process. If your credit score shows a failure in the past to make timely repayments, landlords do not want to take the risk of approving your application. If they do accept you, you might have to pay a bigger security deposit.
- Security deposits on utilities Similar to landlords, utility companies also run a check on your credit score when you put in an application. These companies include cable, electricity, and phone providers. If you have bad credit, these companies may demand a security deposit. This situation remains the same even if you have always made timely bill payments. You will have to pay this deposit before you can register for the service.
- Rejections on employment Some jobs require a good credit history. These jobs include positions in the finance industry or being part of upper management in corporates. An application for any of these positions usually involves a detailed assessment process and thorough background checks. This means that you could be denied employment if your credit report contains negative feedback. Negative credit can be marked by high debt, outstanding bills, or bankruptcy. Employers assess your credit report and not your credit score. They are not actively looking for bad credit. However, noticing it may change their positive opinion of you.
- Higher insurance premiums Insurance companies also conduct a credit check. These companies claim that a higher number of insurance claims filed are connected to bad credit scores. Hence, they charge a higher premium if they notice bad credit.
