There are many consequences of bad credit that are important to consider. You typically won’t qualify for better interest rates on loans or mortgages if you have bad credit, which means that your monthly payments will be higher and can lead to financial stress in the future. Additionally, if you’re not able to get a loan, there are other repercussions, such as being unable to buy a vehicle or home without putting more money down upfront. With no access to reasonable rates for borrowing money, there are fewer opportunities for investing in yourself.Â
What is Bad Credit, and Why Does it Matter?
Anyone who has applied for a loan or tried to buy a house knows that bad credit is a significant factor in the final terms. Lenders will look at your credit score before deciding whether to lend you money, and potential homebuyers have their credit scores checked before buying a house.
In most cases, banks use FICO scores as a quick and easy way of determining how risky it would be to give someone money. The higher your credit score is, the lower the risk is to the lender; conversely, lower scores mean more risk. Once you know what’s required for a high score, you can work on building one yourself.
The Consequences of Having Bad CreditÂ
Credit scores are important because they’re used to determine your eligibility for loans or credit cards. Poor or even average scoring could limit your options and result in higher interest rates, fees, and other costs.
The consequences of having bad credit vary, but the most common effect is not being approved for loans. This can also affect how much an individual has to pay on their car insurance, car payments, ability to rent an apartment, or even get a job.Â
How Often Should You Check Your Credit Score?
People are often confused about when to check their credit scores. If you do it too much, it looks like you are paranoid about your credit score. However, if you don’t check it enough, then you might not be alerted in time that your credit report has a problem before making large purchases.Â
Checking your credit report on your own will not hurt your score, and doing so often can help you stay on top of your credit. Soft inquiries are when you check your credit, or others initiate it, like companies doing promotional offers. Hard credit inquiries are initiated when you apply for a line of credit and can affect your score, especially if used often. How much your score changes when you view it depends on how much new data it has received.
How Often is my Credit Score Updated?
This question depends on the type of credit report. Your FICO or VantageScore typically updates weekly or monthly, depending on your history with the bureau. Your credit score is determined by the three major bureaus and reflects your current credit usage. Each bureau has its own schedule, but reports typically take 30-45 days, and reports are seldom made to all three bureaus simultaneously.Â
How to Fix your Bad Credit Score
There are multiple ways to improve your credit on your own or with the help of a company. Here are a few:
Make Sure All Bills are Paid on Time
One major factor in determining if someone has a good or bad credit score is how often they pay their bills. If bills to a creditor become 30 days late, it will count as negative debt and decrease your score.
Check your Credit Score
There are multiple ways to check your credit score, and this can even be provided for free with some services. This allows you to view factors currently affecting your bad credit score, see errors on your score, and see if any fraudulent accounts have been opened in your name.
Every Line of Credit Counts
Every form of credit matters, no matter how small. Even if you only need a small amount of money to buy a new computer or tv, make sure you pay off your entire debt instead of paying installments toward it. The same goes for charging small amounts on debit cards and opening new accounts, your credit card might not be much, but it still counts as a credit line.
Loans Have Higher Interest with Bad Credit
When applying for a loan, your credit score is considered; loans with bad credit can be more expensive than those with good credit. If you have a low credit score, the lender will increase the interest rate on your loan to compensate for this risk and encourage you to pay back what you owe quicker.
Borrowers with good credit can negotiate for low-interest rates on their loans, sometimes even no interest rates depending on how much collateral they are willing to provide. Loans with bad credit carry higher interest rates because if the borrower does not pay his dues back in full on time, the lender suffers a loss on this transaction.
There are many consequences to having bad credit, but one of the most immediate is that you may not be able to rent or purchase a home. If you want to avoid these issues in the future, then taking the steps in this blog and reaching out for help may improve your situation and help you improve your bad credit.
If you want to see your current credit, get your free credit report and FICO score with ImportantScore.com, a member of the Experian group, in partnership with Movoto.
