Credit cards are like little plastic grenades. If you handle them well, nothing will happen, but they can put you in tremendous credit debt and ruin your credit score if you are not careful. Many people often think that having a bad credit score is not a big deal or that it won’t affect their lives directly. However, the reality is quite different than what one usually thinks. A bad credit score can have a lot of damaging effects on your life and finances, and here are some of them.
You Might Not Get a Home Loan
Buying a home without a home loan is not a viable option for most of us, as home rates are at an all-time high. The best solution is to take a home loan. But when you apply for a home loan with a bad credit score, the moneylender will likely reject your application. This is because they will see you as a high-risk investment. In simple words, your credit score reflects your track record of paying back your debt, and if it is bad, the mortgage lender might perceive you as someone who might not pay them their money back. This is one of the most significant damages a bad credit score can do to your finances.
You Have to Pay High-Interest Rates
Even if you have a bad credit score, many money lenders may be willing to give you a loan despite your credit score. If this happens, you will most likely have to pay much higher interest rates. Giving you a loan despite your bad credit score would be a risky investment, so they will try to get the most out of it by charging you exorbitant interest rates.
You Might Find It Difficult to Land a Job
For entry-level jobs, the criteria to get selected, apart from professional skills, are relatively few. You have to go through drug tests and background checks, along with a few other tests. However, as you grow in your career and start looking for upper management roles, you will find that such positions have a much more comprehensive range of criteria that you must meet. One of those is having a good credit score. If you have a history of outstanding debts or bankruptcy, the company looking to hire you may see you as a risky candidate that may cost them more money.
Your Insurance Premiums Will Be High
Did you know that even insurance companies check your credit score history? For them, bad credit scores are linked to the increased number of claims filed, giving them a reason to hike their insurance premium rates. So, no matter how many claims you have filed in the past, the insurance companies will still charge you higher premiums if you have a bad credit score.
You Have Fewer Renting Options
Like mortgage lenders, even the homeowners do not want to hand over their property to someone who has a bad credit score. A homeowner will gauge your ability to pay the rent on time based on several things like your pay scale, your career, and your credit score. If you have a bad credit score, they might either reject your rental application or ask for a cosigner or much higher security deposits.
You Have to Pay Deposits for Utilities
A bad credit score can even affect your ability to set up an account with utility service providers. Your bad credit score may give them the impression that you might not be able to pay the bills on time. So, as insurance, they will ask you to pay security deposits should you fail to pay your bill on time. In fact, some phone service providers may not even let you choose a postpaid plan if you have a bad credit score. They might require you to use a prepaid plan, and you may not be able to enjoy the best deals, too.
All these points make it sound like the world is against credit card users or that credit cards are a bane for your finances. That is not true. These points are presented to inform you about what happens if you don’t use your credit card correctly. Use 15% of your credit limit, pay the bills on time fully, and don’t buy things you can’t afford to pay with cash. If you use the credit card the right way, it can have tremendous benefits for your finances—all you need to do is be smart and mature about it.