3 Main Side Effects of Low Credit Score
When you apply a loan or swipe your credit card to make a big purchase, you don’t think that this action tests your reliability and personal integrity. You are more excited about the way you will feel watching your new flat-screen TV or driving your brand new car.
However, your lenders don’t care about the improvements in your life. They just want to get their money back – with interest. For obvious reasons, creditors don’t like borrowers with bad credit score.
Apart from affecting your financial life, credit score can influence various aspects of your personal life. Here are several surprising ways your low credit could make your life harder.
High-Interest Rates on Personal Loans
Credit score reflects the likelihood that a borrower will default on loan obligation or a credit card. Therefore, having a bad credit means you are a riskier borrower than a person with a better credit score. The borrower can even find short term loans for bad credit but creditors might charge higher interest rates on these loans. If a person gets approved for a small loan with a poor credit score, they will eventually have to pay more in interest. The more money you borrow, the more you will have to pay in interest.
Getting More Expensive Bills
Insurers, utility companies, and even cell phone and cable providers conduct a credit check prior to providing you their services. These companies want to make certain you will be a reliable consumer and will be able to pay the monthly bills in time. So, if you have a low credit score, service providers may charge you a higher rate due to the increased risk. Otherwise, you may have to leave a security deposit for your phone or cable, which the provider will keep in case you fail to pay the bills.
You May Get Denied for Employment
Particular positions require an applicant to have a good credit history, especially jobs in the finance industry or upper management. You can really get turned down for a position because of your negative credit report, bankruptcy, huge debts, or unpaid bills. Bear in mind that recruiters usually check your credit report instead of a credit score. So, they are looking for things that can affect your job performance and not just your bad credit.
What Are Hard and Soft Credit Inquiries for?
Let’s have a closer look at hard and soft credit inquiries, why they are important and how they can affect your life. Generally, a hard inquiry remains on your credit report for a couple years and may influence your credit score, while a soft credit inquiry doesn’t affect your credit.
- Hard inquiries happen when a lending institution wants to check your credit before making a lending decision. It usually occurs when you apply for another credit card, a personal loan, or a mortgage. This inquiry may lower your credit by a few points or have a bad impact on your score. We recommend you not to apply for multiple credit cards in a short period of time. This can make lenders consider you a high-risk borrower.
- Soft inquiries happen when a company or recruiter checks your credit for your background check. A potential employer may run a soft inquiry before hiring a person. Also, a credit card issuer might check the credit without the person’s permission to see if they qualify for particular credit card offers. Soft inquiries don’t influence the credit score and will only be visible to you when you look at your credit report.
To sum up, a bad credit score may seriously affect many aspects of your life and make it significantly harder. Buckle down and take some steps to boost your credit, so you can open the doors to new opportunities.