Some people are born to wealth. For many other Americans, you are born with a name and a social security number. What you do with it determines a lot about the future you will have. The ability to get and maintain your credit gives you a chance to build the life you hope to have.
The good news is that each person has a clean slate regardless of their parental success or failure. Knowledge is the most vital element when it comes to how your credit affects your quality of life. Even with a failure, knowledge helps you fix a mistake and succeed financially.
7 Ways Poor Credit Can Affect Your Life
There are two housing issues that people must consider: Rental Leases and Mortgages.
- Rental Leases: Most landlords use credit scores as a factor to approve or deny a rental application. It is considered a sound business decision as there is a high probability that a person who leaves unpaid bills will also not pay rent. Even when your history shows paid bills, it may reflect a late payment history that does not align with the rent requirements.
If your score is below 580, creditors consider it a bad credit score. If you intend to rent soon, you should look at ways of increasing your credit score so that your rental outlook is great. The better the score, the nicer the neighborhood you will have access.
- Mortgages: When it comes time for you to buy a house, a bad credit score will most likely disqualify you from the minimal requirements that lenders establish. Even if you are close to the subprime standards, banks will not make exceptions because the risk is too great to assume.
The higher your score, the better the opportunity that you will receive a loan. A 650+ score will secure you a loan, but a score above 700 will get you a proper APR rate. It will also define the amount that the bank feels comfortable loaning you. Before securing a loan, improve your score.
- Employment Opportunities
While an employer cannot see your credit score, they do have access to a credit report that explicitly checks specific information. The ‘employment screening’ does not entitle the screeners to see what your lenders see. It is still effective in helping employers decide, based on your consumer behaviors, your level of responsibility.
That said, there are a few things you should know about this type of credit check. The inquiry does not affect your credit score, nor do the employers have the right to check it without your written consent. They screeners will also not have access to your private information. If the company outsources this task, they will only receive a final decision.
If you want to join the military, you will have to maintain good credit because of its reflection on personal conduct. You may also not qualify for a security clearance. Most Fortune 500 companies will require some personnel to have a good credit history. Would you want someone with poor money management skills overseeing your business’s finances? From accounting jobs to public positions like police officers, credit speaks to a person’s character and potential. When you look at it in this way, you understand the risk.
- Utility Deposits
Bad or no credit will generally affect your applications to utility companies. Public service providers will use a yearly average to establish a baseline for a deposit which will lower risk. Some companies may even double the average monthly bill if a company’s policy allows for two billing cycles before disconnection occurs.
When you apply for services by phone, in person, or online, companies will request your social security number to check your credit history specifically for unpaid utility bills. When you have an established history, your deposits will get waived. Not having credit could set your budget back by hundreds of dollars that you could use for relocation needs.
Paying a deposit does not have to be a negative experience. You can look at this action as a positive experience that you can use to establish your credit. When you pay your bills on time for twelve months, you routinely receive your deposit back because you have established with the company that you are creditworthy. In the future, you will not have a deposit as long as your account, when closed, has a zero balance.
- Cash Only Options
When you have bad credit, you also have a limited scope as to what you can afford, where you can go, and the assets you may accumulate. When you only have cash, it also affects your quality of life in that you will have to do without if you run out of money between paydays. If you have an emergency, it will also affect the type of care you receive from clinics and private hospitals that require payment at the time of service.
For larger purchases like cars, homes, education, jewelry, technology, or vacations, a cash-only option would probably hinder your ability to acquire them. Some businesses prey on people with low or bad credit by charging outrageous interest and monthly fees.
If you or your child wants to attend college, high credit scores may be necessary. Even if you qualify for student loans, there may be expenses that are not covered by this funding. Did you know that if you are in a certain degree program, you will have to take summer classes in another country? Do you know that you will have to pay for this out of pocket? Will a bank loan you money? A parent will need to qualify for a Parent Plus Loan. Education is one of the most expensive things that parents and children worry over. Today is the perfect time to get started on repair options if you anticipate needing credit.
- Personal Relationships
Some people think so much about the financial aspect of credit that they lose focus of the personal consequences. When you think about it, it makes great sense. According to data collected by Citibank, 57% of divorces occur because of money issues. Credit can affect you long before a marriage takes place since it can also prevent it from happening.
Are you planning on getting engaged soon? Well, Forbes has an interesting article on why you should check your significant other’s credit history when dating. Are you in a financially secure place to take on a significant amount of debt that is not yours? How will that debt affect your marriage if you have a spending budget?
The Federal Reserve also introduced a report in 2015 connecting a couple’s credit score to the likelihood of a committed relationship lasting. While it can be a difficult conversation to have early on, you should not wait until you are invested emotionally before calling off a relationship over finances. Discussing your circumstances will let you know if you are financially compatible and have the same outlook on credit. While bad credit is not a deal breaker, it gives you something to work toward before you marry.
Other than relationship issues, it can also affect asset acquisitions like a home. Will a couple buy a home together? How will each person’s credit score affect the mortgage application? Will you both have the financial capability to pay off the debt? These are the type of problems that contribute to a couple’s arguments and eventual break-up.
- Higher APR Due To Risk
Interest rates apply to any company that will provide you with a line of credit. Loans include the principal amount you borrowed and the interest that the company applies to your usage of the loan or credit line. The lower the interest, the easier it will be to repay the loan. They are typically only extended to people with the highest credit scores.
For lower credit scores, your interest rate depends on your credit score. The lower the number, the higher your rate will be since your risk contributes to the likelihood of repayment. Moreover, a lower score is an indication that you have made financial mistakes that have significantly affected your ability to get credit from lenders.
- You Will Pay Higher Premiums
Most consumers are aware of the financial consequences for loans, but did you know that it will affect your insurance premiums as well? Based on data from the National Association of Insurance Commissioners, 85% of home insurers and 95% of auto insurers use your credit score as a deciding factor for policy approval. Would you want to pay higher premiums than your neighbor for an identical policy?
How Can I Improve My Credit Score?
If you feel nervous about credit, do not be because time is on your side when it comes to fixing anything that is broken. You have many ways to establish credit, repair your reputation, and learn more about how to protect your score in the future. While it might seem a difficult task to achieve, you will be surprised what a year will do to your score when you are repairing it.
- If you are not sure of the best route to take, you should invest in credit repair services. The most qualified credit repair companies allow you to make quick fixes that get your score back on track.
- You need to identify your weaker consumer spending habits so that you can avoid repeating those behaviors. If you have a maxed-out credit card, did you tend to spend too much at certain places? Were there things you charged that you should have paid cash? How much interest did you end up paying for the charges? Quantifying your debt helps you understand how quickly the balance builds while also establishing ways you can avoid the same practices in the future.
- You should avoid taking on any future credit lines until you get your current debts paid off. When you work with credit repair companies, they will help you establish payment arrangements for the things that appear on your credit report. They can also help you learn about how to be a reliable credit repair participant. However, the companies cannot force you to stop spending, so this is where you will need to practice self-control as budgeting and spending habits will define your success.
- Develop the habit of paying all of your bills on time and in full which includes your rent, utilities, cell phone, and credit card bills. You will be surprised at how paying your bills on time will help raise your score.
- If your debts are higher than you can afford to pay, it might be time to budget. To save money, you might decide to move to a cheaper area. You could take on a second job. Even a part-time job would help reduce your debts. You could also ask your credit card companies about a rate adjustment.
- If you have teenagers, it is also never too early to help them begin to build their credit. Did you know that you can add them to your credit card as an authorized user? By adding a teenager to your credit line account, it helps establish them earlier in life as a responsible credit card user while also still ensuring you pay for their uses. While you monitor their charges, it helps you be more mindful of your own. Moreover, it is a way to teach your child how to be responsible for future spending and earning.
For people with bad credit, there is no magic reset button. Just as it takes time to build your credit, it also takes time to repair it. Whether it takes months or years, you should keep your mind focused on why you are fixing it in the first place. Put a picture of a house or a college application on your refrigerator to remind you of your goals continuously.
For more information on reliable credit repair, please visit us! We will help you gain knowledge on wealth management, credit repair services, trustworthy credit repair companies, and tips on actions you can take to ensure that your credit score is a number that opens doors for you.