Understanding What Happens When You Have Bad Credit
Understanding what happens when you have bad credit is important. Nobody should want bad credit. It’s not something that you want on your record, as it has a negative impact on many areas of your life. A lot of people are probably unaware that they have bad credit, only finding out when it is too late.
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When will it be too late? Well, imagine you are applying for a big loan to buy a house or possibly even fund a business. If you’ve got bad credit, it’s very difficult for you to borrow money. Lenders don’t trust you, and while there are payday loans for bad credit, it will be hard to find any larger personal loans for larger sums of money.
Building your credit score should always be a top priority if you intend to borrow money at some point in your life. If you still think this isn’t a big deal, here’s what happens when you have bad credit:
It’s harder to get credit
As mentioned above, it is much harder for you to actually obtain credit. This means you have difficulty applying for loans, credit cards, and so on. The companies that lend money to people will not want to give money to someone that clearly has a bad history of paying it back.
After all, that’s what a bad credit score shows them. Your score is bad because of many potential reasons, but the biggest reason is that you have a lot of debt. You’re not paying things back on time, so the debt keeps racking up. For a lender, it’s an easy decision to just deny your application and avoid a lot of stress on their part. In their view, they’ll end up like the other people you owe money to; down some cash and sick and tired of chasing you up!
Needless to say, this can be really damaging if you desperately need a loan. The example given earlier was that you wanted to buy a house. Good luck getting a mortgage with bad credit; it’s unlikely to happen.
Loans and credit cards cost more money
It might be harder for you to get credit, but it isn’t impossible. There are options available for people with bad credit. Unfortunately, this usually goes away from conventional lenders. Any loans you get won’t be from a bank, so you are likely to suffer from extra fees and additional costs. With credit cards, you might be approved for one if your score isn’t that bad, but you end up with a higher interest rate.
That’s the main issue that makes things cost more money here. A higher interest rate will mean you’re basically paying more for the same thing that someone else has. Two people could apply for the same loan, but the other person has a lower APR than you. Why? Because they have a better credit score and are trusted by the lender.
You are not creditworthy, so they take extra precautions. There’s a chance you might not repay the loan – or you’ll take ages to do so. With an increase on your interest rate, it means that they get more money out of you, covering any losses. The bottom line is that a lot of financial products will be more expensive when your credit score is bad.
Renting places will be challenging
Let’s say you’re not ready to buy a house, what about renting one instead? Finding a landlord that will let you rent their house or apartment will be super hard with a bad credit score. Most landlords run credit checks as part of the tenant screening process. Simply put, it’s an easy way of separating ideal tenants with ones that perhaps aren’t so great.
Yes, you might be lovely, have no criminal record and no pets or anything else a landlord might find annoying. But, can they trust you to pay rent every month with a bad credit score? Again, you’re in this position because of your financial past. If you have a lot of debt and a history of missing payments, it will reflect badly on your credit report.
So, the chances of renting a place will be slim. Say goodbye to your number one or two options and get ready to settle for somewhere that’s maybe not as good as you hoped.
You even struggle to get a phone contract
If your credit score is really bad – and it’s almost impressive if your score is this low – then it will be hard to get a phone contract. Or, any other contract that requires regular monthly payments.
Once more, it’s obvious to see why this is the case. Contracts like these are pretty similar to loans. A company is trusting you to pay them every single month. Fail to do so, and they lose money. Granted, it is easier for them to cancel the contract and reclaim the product they have given you than it is for a lender to demand you pay up. This is why it is unlikely most people won’t get approved for a contract.
However, if your score is really bad, then it’s a genuine possibility.
What should you do?
All of this can be irrelevant to you and you won’t know it until you check your credit score. This can be done online and you will be told your score and how good or bad it is.
Okay, let’s say you do have a bad credit score – what next? The good news is that it’s pretty simple to improve a bad credit score. In fact, your score might be bad because you’ve not done a few basic things – like registering to vote.
For a full breakdown on what to do to boost your credit, check out the video below:
If you don’t have twenty minutes spare to watch it, here are the tips it goes through:
- Register to vote
- Pay bills on time
- Pay the full amount of all bills
- Be consistent
- Check for mistakes and fraud
- Monitor financial links
- Keep some old accounts
- Close some old accounts
- Understand credit utilisation
- Use eligibility checkers
- Space out applications
- Use a credit card
- Add rent payments
- Add your regular payments
After doing all of this, you will have an improved credit score and can avoid all of the issues spoken about in this post!
Are you looking for ways to money your money go further then read out article here.