Having a low or poor credit score can make life extremely complicated these days. Aside from affecting your ability to qualify for financing, a poor credit score can hurt your ability to find a place to live or land your dream job. Many businesses now look at your credit score as a sign of your character.
The thought process among some businesses is “if you cannot or will not pay your bills on time, what other aspects of your life do you avoid?” Here are some of the consequences of having a bad credit score and how it can affect your future.
Higher Borrowing Costs
If your credit is poor, you will pay more to in borrowing costs than people with good credit. In some cases, you will pay astronomically more. Most banks label you as a high-risk borrower if you have bad credit. Banks believe that at some point you will default on your loan or credit card.
To protect themselves from the risk of you defaulting, they charge much higher interest rates and fees if you have poor credit. Those ridiculously high rates and fees lead to those astronomical borrowing costs.
Poor Credit and Mortgages
Although having poor credit does not automatically disqualify you from getting a mortgage, it will affect the rate and terms of your home loan. Most lenders offer different loan programs based on your credit history and score. The bottom line with mortgage lenders is consumers with higher credit scores and the lowest debt-to-income ratios get the lowest interest rates.
If you have a poor credit score, you may still qualify for a mortgage, but you can expect to pay much higher interest rates over the life of your loan, which will then affect your financial future. You will also pay higher closing costs and fees, which can affect your ability to finalize a real estate transaction. If you find yourself in a high-interest mortgage because of a low credit score, start taking steps to strengthen your score so you can refinance into a mortgage with a lower interest rate.
Missing Out on Your Dream Job
Unfortunately, credit scores today can affect your ability to find employment. If your dream job is working in the heart of the financial world, Wall Street, and you have poor credit, you might need to reconsider your career choice or find a way to rebuild your credit. Many companies, especially companies that deal in finance, look at a poor credit score as an inability to handle your finances. Therefore, if you cannot handle your own finances, how can you handle a company or individual’s finances?
Other Aspects of Your Life Affected by Poor Credit
Poor credit can also hurt your ability to establish utilities in your name if you are moving into a new home or apartment. Most utility companies check credit reports before they turn on your service. If your credit is bad, the companies may require a hefty security deposit before establishing service. If you need or want a cell phone, you may have to pay a substantial deposit to get a phone.
Some insurance companies are now charging higher monthly premiums if you have poor credit. The thinking is people with bad credit file more claims than people with good credit. The bottom line is poor credit can have an adverse effect on the future of your financial freedom.