Credit reference bureaus start keeping a record of your credit history immediately you take out a loan or you secure your first credit card. They will then track the amount of debt that you have, you're promptness in paying bills, and your repayment history to calculate your credit score. If you are always late in repaying your loans or bills, then you will eventually end up with a poor credit score or bad credit. Unfortunately, bad credit will not only affect your personal finances, it will impact both your personal and public life. gov.uk have recently released a budgeting guide to help you manage your finances to ensure you don’t end up with a bad credit score or how to Improve your credit rating . Here are some ways in which bad credit can make your life extremely difficult.
Failure to Get Loans
If you are seeking a loan from banks, credit unions, and other financial institutions, they will first assess your credit score or credit rating. They will then use that information to decide whether they should give you loans or not. The lower your credit score, the lower the chances of finding a willing lender. In short, most lenders are not willing to work with people who have a poor credit rating. If you have a bad credit score, most lenders will assume that you may end up failing or delaying to repay the loan. And this can turn out to be a problematic issue, especially if you were looking for an emergency loan. As a result, you may be forced to turn to costly alternatives, which may make your debt situation even worse.
Unfavourable Loan Terms
In case a lender approves your loan, the loan terms will be unfavourable. People with poor credit scores are forced to pay higher interest rates for loans, compared to people with good credit history. For instance, if you have bad credit and you are looking for a mortgage, your lender may require a down payment of up to 20% of the home's value. Therefore, if the home's mortgage is £300,000, then you will have to make a down payment of at least £50,000. On the other hand, if you are not a risky borrower, a down payment of 5% or £15,000 should be enough. In case you are not able to pay the loans in full, the lender will have at least received some of the money in down payment. However, just because you cannot secure a loan from a bank or from mainstream financial institutions doesn't mean that your options are over. You should check websites such as UPMoney for other options.
Loss of Job and Housing Opportunities
When renting or leasing a house, there is a high chance that the landlord will check your credit history, before approving your rental application. And this is understandable since landlords always want to work with the best tenants. Therefore, if you have a high credit score, then it's highly likely that you will pay your rent on time. On the other hand, if you have a bad credit rating, there is a high chance you may default on rent or delay paying. And this means that you will end up staying in undesirable areas if you have a history of delinquencies, late payments, or foreclosures. In the same way, you may end up missing out on decent employment opportunities, if you have a poor credit score. For instance, you may be turned down for a job especially in the finance industry or upper management, if you have high amounts of outstanding bills, heavy debts, or bankruptcies.
Challenges Securing a Cell Phone Contract
Most people are increasingly relying on their cell phones as their primary means of connection to the outside world, as opposed to using landline phones. The problem is, the majority of cell phone companies will check your credit history before deciding whether to approve your new contract. The reasoning is, if you have a poor credit score, there is a high probability you will not pay your bills on time. Therefore, if you have bad credit, you may be required to make a security deposit, just in case you default on payments. You may also be required to find a co-signer or a person who will agree to pay your phone bills in case you delay or default. On the other hand, if you have an excellent credit score, then you will not experience any of these challenges.
As you can see, the consequences of bad credit can be a lot more serious than you may have thought. However, having a poor credit score doesn't mean it's the end of the world. You can still get your credit score back on track by identifying the factors that have led to your poor credit rating and undertaking the necessary actions to clear the issues.