Friday, May 11, 2018
10 Ways Having Bad Credit Affects You
We all know that we need to keep our credit as squeaky clean as possible. What we don’t know is how having bad credit can impact us negatively in the future. Right when we are getting out of high school, banks are quick to offer us debt. Student loans, lines of credit, credit cards all can add up to us being in a heap of trouble. While this is going on it is important to understand bad credit and its implications. The goal is to maintain good standing and carry that on into your middle-aged years. Today I will show you 10 ways that having bad credit negatively affects your life. I do this in hopes that you keep paying your bills on time and not get in over your head.
1) You get shut out
Having bad credit can keep you from doing the things you want like buying a home. Most lenders have a minimum credit score standard that they adhere to. The reason this exists is so that the lender does not feel at risk with their money being on the street. If any lender feels there is a risk of you not paying them back, they will not give you a loan. This could mean not being able to buy your dream home or getting a loan for various other things. When you are just starting out this will impact you greatly as you haven’t built up enough wealth to obtain things outright.
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2) Interest rates will affect you
The qualifying interest rates for people with sub-par credit is higher than people with decent credit. The reason this is the case is that built into every loan is a risk and with every risk, there is an associated cost. For those with bad credit, they pose a higher risk to the lender, so the lender makes them pay for that risk. It’s all a numbers game that leads you to pay more than someone else. This can really add up when you must buy a home or take out a small business loan. Speaking of starting a business…
3) Starting a business can be tricky
I don’t know many people that can start a small business without spending a dime. The story rings true, “You have to spend money, to make money.” Most of the time that requires you to take out a personal loan or line of credit. Having poor credit can hamper you in this regard. What many people fail to understand is that a good idea is not all you need to be an entrepreneur. You also need the money to back it up. Keeping your credit clean will allow you to get rolling with your idea.
4) It affects employment
Certain jobs require you to have decent credit to work for them. Often times this is at the higher end of employment or when you are dealing with money. Why is this important? Having bad credit is often an indicator of how you treat your finances. How you treat your finances is often an indicator of how you treat your livelihood. These are not hard-fast rules, but they do have some merit. If they did not, employers would not check credit before you applied.
Monitor Your Credit with Credit Karma
5) Where you live
We have mentioned how getting a mortgage can be tough when your credit is bad. How about just renting an apartment. My apartment pulled a credit check when I applied to live there. The reason why is because the rent is not cheap and they do not want to be on the hook for any losses. If I did not pass their checks I would have been relegated to renting from a private individual, but sometimes even they do credit checks. Most nicer apartments require good credit to get in, so having bad credit could keep you renting worse places.
6) Utilities cost more
Most utility companies will require you to pay a deposit when you first hook them up. This can cost you hundreds of dollars per company. That could run you up to a few thousand when you move into the new place. If you have good credit you can argue your case that you should not have to pay these deposits. That could save you thousands of dollars in upfront costs.
15 Surprising Ways Bad Credit Can Hurt You – Wise Bread
7) Insurance costs more as well
Your insurance may cost more with poor credit as well. Some companies see a correlation between lower credit and higher amounts of insurance claims. This means that they will pass the cost on to you. While this practice is not common, it does exist. The same may happen with your auto and home insurance as well. Having good credit will ensure you are saving money on a monthly basis.
8) It’s expensive
Simple things like bad interest rates, higher insurance costs, and bad job prospects can affect your monthly cash flow. This is why the poor often stay poor. Being low income often leads to the abuse of credit. The abuse of credit leads to higher charges for servicing this credit. This means that you have less money every month, so you need credit to fill the gap. This causes you to not get good jobs and be stuck in the debt cycle. It’s a trap that many people fall into and then they seek out riskier lenders for their loans. This can cause even higher interest rates and lead to bankruptcy.
Start Your Financial Spring Cleaning – Budget Boss
9) You will lose opportunities
A mortgage refinance is usually to eliminate debts. Sometimes people use them to take advantage of opportunities like buying a rental property. I have several clients who have translated home equity into multiple rental properties that have generated a steady passive income for them. This can only occur if you have decent credit and are not seen as a risk to the lender. This could be a solid part of your retirement plan and I know many who have translated rental properties into a wealthy lifestyle.
10) It’s demoralizing
I remember back in the day being denied a credit card because my credit score was terrible. It is a gross feeling. Sadly, your credit score is often linked to your overall financial health. Keeping it good means you are doing all the right things financially. Having a poor one usually means you are not keeping up with your financial obligations. This can be stressful and just plain depressing. The pain and despair of poverty are real, I’ve been there. It’s important to know that good financial health is usually linked to good overall health. I wish the two were not linked, but they unfortunately are.
Having bad credit is not a death sentence. It does take time to repair but it can be done with hard work and dedication. All you have to do is get your financial house in order and after that, you will be amazed at the results. Start with having a dedicated monthly budget and go from there. The sky is the limit.
“Credit cards are like snakes: Handle ’em long enough, and one will bite you.” – Elizabeth Warren
Email – joe@budgetboss.ca
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