A credit score is something that everyone has to show how you manage your repayments whenever your borrow. If you end up missing repayments, or even pay your bill the day after it’s due, your credit score can decrease. Having a low credit score can make it difficult for you to apply for finance like a loan. However, there are bad credit loans available if you’re really in need. There are other ways having a low credit score can affect you, and here are 8 of the most common.
- Lending BecomesA Risk
With a bad credit score, you’re way less likely to be approved for a loan, whether it’s a personal or business one. Having a low score shows that you regularly miss payments which is a bad indicator to lenders. They want to be sure that you’re able to afford the loan you’re requesting. This means even if you technically can afford the repayments, if your credit score is low, it won’t look like it to lenders. So, make sure you get into the habit of not just paying your bills, but paying them on time.
- Your Loan Interest Rates Will Increase
Having a good credit score means you’re more likely to be offered your loan of choice, and with better interest rates. Your bad credit score shows lenders that you might not be able to make the repayments, so to prove to them that you can, they increase the interest rates which makes your monthly payments higher. This gives some security to lenders that you’re agreeing to be able to afford a higher repayment, even if your score is low.
- You’re Less Likely To Be Approved
If you have a bad credit score, you might not even get approved. Even if you show you can afford higher interest rates, the lender may deem you too risky to lend to. This doesn’t also just relate to personal finance loans; this can relate to credit cards too. So, if you’re looking to fund yourself or a business via borrowing, you’ll need to ensure you have a good credit score.
- Renting Or Buying Can Be Difficult
If you’re thinking of buying a property, you might have a hard time getting a mortgage with a bad credit score. This is because you’re essentially borrowing a large sum of money to purchase your house and then make monthly repayments to pay it back. However, a bad credit score shows that you might not be able to make the mortgage payments back to the lender. Even if you’re thinking of renting, agencies may run a credit check on you to ensure you can meet the monthly rent.
- Insurance May Come At A Higher Premium
Car insurance is a must when you’re a driver. But if you’re credit score is low, you’ll end up paying a higher amount each month. When you choose a car insurance provider, you’re technically borrowing a year’s worth of insurance, which is why you pay it back in monthly instalments. Your low credit shows car insurance providers that you’re not good at paying back what you’ve borrowed in the past.
- Starting Your Own Business
If you ever wanted to start your own business, you’ll need to ensure you have a good credit score. Some loan providers will look at your personal score if you don’t have a business one built up yet.So if your own score isn’t good, this doesn’t give them confidence in you, let alone your business.
- You Might Not Get A Phone Contract
Even something as simple as setting up a phone contract has a credit check involved. If you’re wanting to move away from a Pay As You Go mobile, then setting up a contract can be an easy way to pay less and get extra perks from your chosen provider. However, if your credit score is bad, the phone company will be less willing to set up a contract. When you set up a phone contract, similar to car insurance, you take out a loan against the phone, with the promise to pay it back over a fixed amount of time. But a bad credit score will show the provider that you might not be capable of paying them back, so you could again be rejected.
- Utilities May Not Come As Cheap
Energy companies also run credit checks when you request to switch providers. This is to ensure that you’re able to make the payments suggested in your proposed tariff. If you’re credit score is very low, the company might not reject you. But instead, they might offer a slightly different tariff or offer to set your meters up as Pay As You Go. This can lead to you paying more in the long run as the best deals normally come from choosing a fixed term tariff and prepayment meters tend to be more expensive per unit of energy used.
These 8 reasons are just a few examples of how having a bad credit score can negatively affect your life. If you’re score is low, don’t panic, you can always increase it. Make sure you get your finances up together, pay your bills on time, and you’ll be sure to see a steady rise in the number.