5 Ways A Bad Credit Report Can Seriously Mess Up Your Life
Many people who have a bad credit rating often find themselves in difficult financial situations. But what does it actually mean to have “bad credit”?
It can come from several things. A person can have bad credit from not paying their credit card bills or monthly home loan instalments on time, or missing these payments altogether.
It could also be because you’ve gone through a bankruptcy or foreclosure process.
Even something as seemingly innocuous as sharing an account with your spouse who have bad borrowing habits can also affect your credit.
The more negative marks you have on your credit report (such as default payments, bankruptcies, etc.), the lower your credit rating.
“So what’s the big deal with a bad credit rating?” you ask. Well, it does pose various debilitating effects on your finances, so it can affect your daily life more severely than you think.
Here are 5 ways a bad credit report can seriously mess up your life.
1) It could mess with your credit and loan applications
Banks and credit card companies use a variety of different information to give you a credit score, which determines whether they will approve your loan application and at what interest rate.
The debt service ratio (DSR) is a popular benchmark used to measure an individual’s ability to produce enough income to cover his/her debt payments.
Because lenders often think that bad credit is a risk, having a poor credit often means that you will be charged higher interest rates, given a smaller margin of finance, or simply rejected outright.
This includes applications for credit cards, hire purchase loans, home loans and education loans.
In general, your monthly debt (including the one you’re about to take), should not exceed 70% of your monthly net income for home loans, and 60% of your monthly net income for car loans.
2) It could leave you homeless
You already know that having bad credit can significantly reduce your chances of securing a home loan, but did you know that it can prevent you from renting a place as well?
It is true. Some landlords do run a credit check on potential clients before they sign a lease to avoid future conflicts and the process is simpler than you think. For instance, online databases like CTOS lets subscribers perform credit checks, monitor and reference any person or company they intend to do business with.
Of course, the decision to lease a place to any particular tenant will ultimately be up to the landlord, but it goes without saying that someone with bad credit will certainly hold a lot less appeal as a potential tenant.
3) It could mess with your chances for employment
Besides messing with your chances of getting sufficient accommodation, it could also mess with your chances of getting employed.
Certain jobs, especially those in higher management positions or in the finance history, require their candidates to have a good credit history. Companies like Verity Intelligence run background checks, which includes credit check, for companies.
So you can actually be turned down for a job position due to negative items on your credit report, especially from high debt amounts, bankruptcy, or outstanding credit card bills.
4) You could face greater difficulty starting your own business
Having bad credit does not only affect your chances of landing a job, it can also impede your aspirations to start your own business.
If you’re thinking of setting up your own business, you will probably require a bank loan to help fund your start-up.
However, if you have bad credit, it can limit the amount you are able to borrow to start a new business, even if you have the greatest idea or product, and the data to prove it.
5) Higher insurance premiums
This might surprise you, but some insurers charge consumers with low credit scores higher premium rates, especially when it comes to auto insurance.
This is because many insurers are of the opinion that consumers with lower credit scores are linked to higher claims filed.
Because of this theory, they check your credit and charge a higher premium to those with lower credit scores, regardless of the number of claims they have actually filed.
What if you already have bad credit?
Don’t despair just yet. Just because you have bad credit now, doesn’t mean it will stay that way forever.
Get back on the financial track with first cleaning up your credit and clearing up existing debts before you apply for a new loan. Eliminating bad credit will not be an overnight process, but clearing up your debts is a good way to start.
You can utilise a balance transfer card for this purpose.
Taking up a personal loan is another option you can go for to help you better manage your debts (albeit an unconventional one). For example, if you currently have a number of outstanding debts, you can choose to consolidate your debts into a single lower interest personal loan.
One major benefit to doing this is that when the loan agreement is signed, the personal loan interest rate (which ranges from 6.5% to 21%) is fixed for the entire loan repayment period. This means that your interest rate will not fluctuate or compound, and your payments will always remain constant.
It will also be a whole lot easier to manage just one repayment instead of multiple, making debt management a much simpler and more straightforward process.
You may also engage the help of the Credit Counselling and Debt Management Agency (AKPK) if you are at a loss on where to start.
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