You’re giving money away to the banks.
Credit scores are used by banks and creditors to assess the likelihood that you will default on a credit card or loan obligation, in other words, this number measures your credit-worthiness. Low credit indicates that you’re a riskier borrower, and creditors and lenders make you pay for this risk by charging you a higher interest rate.
With a good credit score, you have access to more affordable loans. Loans payments are composed of interest and principal (the sum that you initially borrowed). Lower interest rates facilitate the repayment of your loans because you are paying less to the bank, therefore you have more resources for other obligations, needs, or even better savings.
To better understand what is on your FICO scores and how they are calculated read this article.
Now you understand why having less than great credit is increasing your costs, simply put you are paying more than everyone else for the same things.
Getting approved with bad credit is a blessing in disguise
If you’re approved with a bad credit score, you’ll pay more in interest over time than you would if you had better credit.
Consider the following example. If you get approved for a fixed thirty-year mortgage of $200,000 with a credit score of 620 your annual interest rate would be around 5.81%, this would equate to a monthly payment of $1,175. Now, if your credit score was 760, you qualify for a 4.22% interest rate with a monthly payment of $980. That means you are giving away $195 a month, $2340 a year, and over $70,000 over the life of the loan! Imagine all of the things that you could do with that amount of extra money each year.
You would think that a 620 score isn’t that bad… But the example above proves that misconception wrong. Now, if you add to that example $80 more a month in credit card interest, and $107 a month for a car loan payment. That totals $4584 a year! See how a good credit score puts money in your pocket?
The first step is understanding your reality, accepting it, and take the necessary actions to change it. This is why checking your credit scores regularly is vital to maintaining your awareness on your financial realities and what needs work. If you don’t keep track of your credit scores, your spending habits, and your budget, they will not go away. The problems will continue to aggravate as time passes by and knowing that you have these obligations will increase your stress, when you can just face the reality and take a few months to fix it.
Hidden and surprising ways your credit history affects your everyday life and your future.
The impact of your credit history goes beyond the ability to get a mortgage, car, credit cards, etc. In this day and age, your credit score is like a fingerprint that tells people how financially responsible you are. Here are unforeseen consequences of having bad credit, and the potential effects on your day-to-day life and your future.
1. Having a bad or mediocre credit score can limit your career progression
Imagine you are applying for a promotion that entails planning and controlling the budget for a department in your company, under the law your bosses have the right to check your credit history as part of your evaluation. You are at risk of losing a promotion, and the financial and career opportunities it could have brought.
Employers are also checking credit scores to screen job applicants, as another way of evaluating your responsibility and trustworthiness. This is especially true in banking and government roles.
Do you want to risk losing your dream job or promotion solely because of your credit? USA Credit Repair can help you fix your credit and make your career dreams come true.
2. Could affect your love life
Although it sounds surprising, potentials partners are more and more interested in your credit history. When you marry someone or even when you live together you are affected by other person’s financial habits and credit history. Having a partner with a bad credit history can affect your entire financial life and future, from daily life obligations to making major purchases like buying a house.
3. Increase your apartment and utility security deposits
Both utility companies and landlords take your credit into consideration during the application process. A bad credit history may not only affect the chances of you getting the apartment and location you want, but also require a higher security deposit. Similarly, utility companies may request a utility deposit in order to provide service in your name, increasing your cost of living, and resources you could have available for paying loans or saving.
4. Affects your ability to get a phone contract
Cell phone companies check your credit too, they need to know how reliable your payments will be and whether your eligible for a phone lease. Having bad credit may result in you having to opt for a more expensive prepaid plan, and paying your phone upfront.
5. Increase the probability of higher health insurance premiums
Insurance companies analyze your credit history as another way to calculate your probability of failing claims. Having a lower credit score may increase the premium that they charge you.
6. Limit your access to resources to start your own business
Even if you are planning to finance your business with savings and you have a strong business plan, a bad credit score will limit the amount a bank will lend you and increase the interest rate. This will immediately increase your operating costs when you could be dedicating those resources to grow your business,
7. Having a bad credit score can determine your future
The thought of the future can be an important stressor. The only way to set you up for success in the future is to start managing the aspects of your life that you can control now. It can take multiple months of prompt payment and proper credit history building to get a good credit score.
It is instrumental for your short-term and long-term goals to start building a solid credit history and to monitor your credit frequently so that you can fix any negative items. Keep track of your credit score, and make sure that you take action when you detect any potential issues. This is the key to a bright financial future and a happy life for you and your loved ones.
An excellent credit score will not happen overnight. Take the first step and contact USA Credit Repair today.
- USA Credit Repair. June 5, 2017. What is my FICO Scores? Retrieved from: https://www.usacreditrepairinc.com/whats-fico-scores/
- Irby, Latoya. March 26, 2018. How your credit score influences your interest rate. Retreived from: https://www.thebalance.com/how-your-credit-score-influences-your-interest-rate-960278
- Irby, Latoya. November 22, 2017. The Side Effects of Bad Credit. Retrieved from: https://www.thebalance.com/side-effects-of-bad-credit-960383
- Pant, Pant. July 24, 2014. 6 Surprising Ways Your Credit Scores Affects Your Everyday Life. Retrieved from: https://studentloanhero.com/featured/surprising-ways-your-credit-score-affects-your-everyday-life/