Introduction To Credit Scores
If you’re reading this, then it’s likely that you have some concerns about your credit score and the risks of a low credit score. You may not know what all those numbers mean or how they can affect your life. In this blog post, you can discover several of the risks of having a bad credit score.
What is a Bad Credit Score?
You may be wondering what a bad credit score is. Another name for a credit score is a FICO score. These credit scores fall within a range from 300 to 850. Bad credit scores are credit scores below 600, while good credit scores are credit scores above 700.
You may have heard the terms “risk score” or “credit risk.” The better your credit score, the lower your risk to the lenders who consider extending credit to you. Alternately, if you have a bad credit score, it may affect your life negatively in several ways.
How Can I Find Out What My Credit Score Is?
You have the right to request one free credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) each year. Of course, if you are willing to pay, there are options for obtaining credit reports more frequently. You can also get reports from some banks or even download an app on your phone that will allow you instant access.
Some Risks of A Bad Credit Score
A bad credit score may negatively impact your likelihood of getting hired for a job.
Imagine that you find an ad for a job opening. As you dig deeper and learn more about the employment opportunity, you get more excited about it because this is your dream job! You polish up your resume and apply for the job. The interview goes exceptionally well. You are aware of several other applicants for the position, but you are hopeful that you will be the one chosen. You receive a package of documentation to fill out so that the employer can do some additional screening. Your heart sinks when you realize that one of these items of screening is a credit check. You know your credit score is terrible. Will this hurt your ability to get your dream job?
The reality is that some employers may consider applicants’ credit scores as part of their hiring process. If the employer discovers that your credit score is low, it may reduce your chances of landing that job. Your bad credit score may give another job applicant the advantage over you in a competitive job market.
You may not qualify for the credit card, loan, or mortgage you want because of your bad credit.
Maybe it is time to get a new car. Or you want to purchase a house to live in finally. But when you start completing the paperwork to get a loan or mortgage (or even a credit card), you are filled with a sense of dread. You know you have a bad credit score. Will this keep you from replacing your car or purchasing that house?
When you have a bad credit score, there is a good likelihood that lenders will reject your applications for various forms of credit. These rejections can make it difficult to purchase a car or house, for example. And the feeling of rejection can hurt your self-esteem and mood in general!
Even if you qualify for a credit card or loan, you may be given a higher interest rate due to your poor credit.
The increased risk of default that comes with extending credit to you results in added fees from these lenders. A higher interest rate means that you’ll have to pay more for the item you’re financing (unless you pay it off within the credit card grace period). Next time you come across a credit card offer for people with bad credit, take a look at the terms. Chances are the interest rate will be significantly higher than what it would be for a more standard credit card.
Another way that lenders who offer credit cards for people with bad credit may reduce the perceived risk of extending credit to you is by offering a secured credit card. A secured credit card is a credit card that requires you to pay a security deposit upfront to obtain and use the credit card.
Credit cards for people with a bad credit score also often have a low credit limit. If you get a credit card with a credit limit of $300, you will be very limited in what you can purchase on that card.
Your insurance premiums could be higher due to your bad credit.
Do you ever get annoyed by high insurance rates? If only they weren’t so crazy high. But what if you knew that your bad credit score was causing your insurance rates to be even higher? These higher rates can be the case for auto insurance, renter’s insurance, or homeowner’s insurance that you are looking to purchase. A bad credit score might even cause an insurer to reject your insurance application altogether.
Renting an apartment or other place to live might be more difficult due to your poor credit.
Finding a good place to rent can be a real pain. You frantically search for available rentals that meet your requirements (especially difficult if you have pets). You contact landlords and rental management companies, hoping that the rental they listed is still available and that you can schedule a viewing at a time that works for you. You drive around to view the different places. You fill out applications hoping that yours will stand out in a good way when the landlord goes through them to select a renter. But you have a nagging fear because of your bad credit. Could that keep you from renting the place that you want?
Landlords and property management companies will often run a credit check before signing off on a potential tenant. If you have bad credit, they may be less likely to accept your application for renting their place. If you are trying to find a place to rent in a competitive rental market, your bad credit score may put you at a considerable disadvantage.
Getting a mobile phone plan without restrictions may be more difficult when you have bad credit.
If you are trying to get a new cell phone service with a bad credit score, you may find that you are a bit restricted in the plans and promotions available to you. You may discover that you have fewer options for cell phone plans, and you may find that you will need to settle for a pre-paid plan that may not have as many desirable features and options.
A low credit score may create challenges or affect your rate when getting utilities.
Utilities like electricity, water, and sewer are essential services. A low credit score may not automatically keep you from getting these utilities, but it could have an impact on your rate or plan eligibility.
What Can I Do To Improve My Credit Score?
So, given these risks for people who have bad credit, you may be wondering what you can do to improve your credit score. It would be good for you to think about several factors as you work to improve your bad credit. There are several practical actions you can begin right away to start moving beyond bad credit. If you are ready to discover more about some of these things, see our blog post “Five Tips To Improve Your Personal Credit Score.”
Improving your credit score and moving beyond the constraints of bad credit will take some intentional focus and may take a bit of time. But it can prove to be rewarding and worthwhile to move beyond a bad credit score.
Are you ready to get serious and improve your credit? Lion Fortress Credit is prepared to work with you as an individual or as a couple and help you move on from bad credit and build toward a great credit score. You can claim your free consultation and learn about how we can help you improve your credit score. Find out more here.
Imagine Your Future Without Bad Credit Scores
Imagine the money you could save when you improve your credit score! Think of what might be possible when you put that bad credit score behind you: lower credit card interest rates, lower insurance rates, and better options for mobile phone plans and utilities! Imagine having less stress and fear of rejection the next time you apply for a credit card or loan.