“Okay, mister, this is going on your permanent record!”
How many of us, who were prone to engaging in mischief in our younger years, recall hearing this admonition? Of course, now we know it was an empty threat, launched primarily to try to frighten us into staying in line. That “permanent record” has no effect upon your life as an adult.
However, there does exist a permanent record about which we were not told. Our credit histories hold huge sway over the quality of our lives. Here’s what you need to know about having bad credit.
Denied, Denied, Denied
That smartphone contract you thought would be an easy acquisition — denied. That new apartment you need to so you can be closer to your work — denied. That new high security job you’re trying to get — denied. Utilities, the internet, anything that requires someone to trust you — all denied.
In each of these instances, your credit report will be pulled to determine your creditworthiness. In many situations, the information on your report is looked upon as an indication of your veracity. People are going to be unwilling to take a chance on you if your report suggests you won’t follow through on your obligations.
You’ll Pay More for Loans
While it might be surprising to learn you can still get certain types of loans — even with bad credit — you can definitely expect those loans to come at a high price. There is a class of lenders out there specializing in lending to people with bad credit, because they know they’ll make a lot of money off of them.
However, a lender’s interest rates will always be tied directly to your credit score. The higher your score, the lower the rate you’ll be required to pay — and vice versa.
The loan savings calculator at MyFICO.com clearly illustrates this. A low credit score can mean paying nearly two percent more than someone who has a high credit score on a home mortgage. That’s a lot of money when you’re talking about a loan of hundreds of thousands of dollars.
The difference is just as dramatic on car loans and credit cards.
Your Debt Solutions Become More Limited
Indebtedness generally goes hand in hand with bad credit. And, while there are a number of ways of dealing with it, the methods with the least expensive solutions are all but closed off to people with bad credit.
Let’s say you’re thinking of taking a debt consolidation loan to make your obligations easier to manage. You’ll be hard pressed to find a traditional lender willing to work with you when you have a low credit score.
In extreme situations your only option might well be filing for bankruptcy protection, the aftermath of which stays on your credit report for up to 10 years.
Insurers Will Think Twice Before Covering You
Another consequence of having bad credit is insurers will be reluctant to cover you. And, if they do, they will almost certainly want more money for doing so. Research has shown a definite correlation between low credit scores and other risky behaviors so insurers look at bad credit as a risk factor.
As you might well imagine, insurance companies are exceptionally risk averse. Anything that looks like it might wind up costing them makes them either charge a lot more money or turn the applicant away altogether.
These are just three of the consequences when it comes to what you need to know about having bad credit. While it’s entirely possible to wind up in this situation through no fault of your own, it’s especially important to always do everything you can to preserve your good name.