11/16/2022
Having bad financial habits is karma that keeps you from that level of peace of mind you crave. If you add to this a bad credit score, you have the perfect recipe for regretting your financial decisions every day.
Given this bleak outlook, we explain how an unfavorable credit score affects your quality of life.
In a country where credit image is fundamental to economic progress, indulging in a bad credit score could be considered an act of daring. Paying late, having a debt-to-income ratio above 50% and reaching the end of the month with no money will not be your only worries.
This bleak situation affects your present and future. If your FICO Score is below 500, here's what can happen:
You have to pay a deposit for basic services
Having a bad credit reputation makes it more difficult for you to get an account with an Internet or service company. At the risk of non-payment, they require a guarantee before you sign.
A bad credit score also prevents you from getting the best service from cell phone companies, which will ask you for a deposit or to use a prepaid plan. Not to mention that you won't be able to access the best deals on the most sought-after cell phones.
It will be harder to find a job
Although there is no link between a bad credit score and job performance, more than 70% of employers check your credit file.
This is done in most states in the U.S. (except CT and IL) and 1 in 7 people interviewed were turned down because of this.
This requirement has become important when it comes to management positions managing money and in financial or government institutions.
Access to loans will be more complicated
If you need a major loan, you know that banks or lenders have to review your credit history to know the risk of financing you. The benchmark scores are FICO and Vantage, which are used as an objective sample of your financial habits.
While for a government-sponsored mortgage loan you only need 500 and 10% down, other mortgages require at least 600+. This is also true for most credit cards, for which you are required to have a good or excellent score (670+).
Even so, it is possible to find loans with bad credit, which offer you money even if you have a low score, although they will charge you higher interest rates and may require some extra collateral.
Tighter terms and higher rates
When it comes to financing, having a bad score does not mean you will be turned down every time. The possibility of approval is linked to whether you are willing to accept the conditions offered and higher interest rates.
If we are talking about large loans (home, auto and free investment), one percentage point more can represent thousands of dollars in interest. It is well known that people with good scores have more flexibility from companies and financial institutions.
Insurance premiums will be higher
Raising monthly policy premiums is a practice that is prohibited in some states. However, there are insurers that apply these increases when your score is not the best.
Especially for auto insurance, there is a correlation between a poor score and the likelihood of that person making an insurance claim.
In fact, there is a greater likelihood that poor payers will incur an accident than those who are not, so they tend to pay more than twice as much for their premiums. A bad score also affects renter's insurance rates and could prevent you from getting life insurance.
It could prevent you from getting a rental
Unless you want to live in an undesirable place, you need a good credit score (640+). This is especially true for those who aspire to live in modern, well-kept properties in sought-after neighborhoods.
If you intend to rent a good apartment, the landlord may check your file for your credit history. Any late payments, bankruptcies or non-payments are a bad sign for them, resulting in selective rejection.
Try to maintain a good credit score
You may end up with a poor credit score during a "rough patch" or financial problems. This situation, while not an irreversible condemnation, can get you into a lot of trouble in the United States.
If you aspire to have an above-average standard of living, save, invest and leave an inheritance for your children, you need to reverse this condition.
Rather than resigning yourself to continuing the same bad habits, you should look for a way to solve it by getting better organized. To do this, you have debt consolidation, secured credit cards and other resources that allow you to pay off your debts to regain credibility.
Español: ¿Cómo te afecta un mal puntaje de crédito?