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The Effects of Bad Credit

A credit score is a numerical representation on the credit-worthiness of an individual, which is based on a level analysis of a person’s credit files. A credit score, ranging from 300 to 850 with 850 as the highest score, of a borrower is produced by financing companies with a Social Security number using data from the person’s previous credit history, while lenders use a credit score to evaluate the probability that a person repays his debts. Credit scores have great influencing impact on a borrower’s personal finances, as well as affecting your capacity to borrow, such that if you’re not performing well with your credit score, which means you’ve got bad credit, the following effects are bound to impact you.

Getting a loan approved can be difficult

There will be a difficulty to borrow money or get approval for a new loan or a credit application if your credit score is low. If your score is 698 and the qualified score is 700, it just shows that even if your score is almost close to the cut off score level, you will have difficulty borrowing for a new loan, because many lenders don’t make loans where the credit score falls below the accepted level.

Confronted with higher rates when you borrow

Money lenders and financing companies are relying a lot on a borrower’s credit scores such that when a borrower’s credit score is a few points way below the qualified score, his chances of borrowing may be slim but if he gets his loan approved, he will be confronted with a higher rate and with additional restrictive terms from the lenders or financing institutions. The interest rate difference can mean an additional of tens of thousands of dollars to the total cost of a mortgage, depending on how the loan is structured, but the same principle applies to auto loans, home improvement loans, personal loans, and credit cards.

Trouble renting an apartment

Credit score rating is subject to the kind of apartment unit that is open for lease, such that if you’re applying to rent an apartment and your credit score is high, landlords can accommodate you to well-kept, modern apartments in a desirable neighborhood, but if your credit score is low, landlords may be lenient to the credit score but will offer you a substandard dwelling unit in an undesirable area and, at the same time, the landlord will most likely require a pre-lease credit check.

Difficulty to find jobs

There is a high probability of employers to check on the credit status of prospective employees during the hiring process, which shows that the credit score level of an applicant can be a contributory factor to his future employment, most especially with positions that need a security clearance. In a handful of states in the US, the practice of a credit status check on an applicant is banned or restricted, but this doesn’t stop employers from doing the checking rounds because ideally an employee can work efficiently if there are no distressing factors, which he/she is carrying, one of which is a bad credit.

Strain on personal relationships

There is a strong impact on how your credit status can affect your family relationship, especially in situations when you’re applying for either a home loan or an auto loan, because lenders look at both you and your spouse’s credit profiles and assess your household’s overall credit risk. A higher interest rate or a larger down payment will be required, if one of you falls lower in the credit qualification, and if you fall behind payments, you not only suffer the consequences of a low credit card score, but a strain in your family relationship is also gradually developing as an outcome of stress from being confronted with these financial issues.