A Bad Credit Score Can Be a Big Problem
Credit scores are often divided into five categories: Exceptional, Very Good, Good, Fair and Poor. Having a Fair or Poor credit score can be a huge obstacle whenever you’re making big lifestyle changes. Read ahead to learn about the popular scenarios when a less-than-ideal credit score will come up and what you can do about it. And you can also check Irwin Insolvency for more info.
Why Credit Scores Are Important
A credit score lets banks, lenders and other authorities know how well a borrower has managed to handle their debt repayment. If they’ve used a credit card for years without missing a single bill payment or maxing out the card, their score will likely be high. If they’re always late with payments and pushing the balance to its very limits, the score will likely be low.
Why is it important? The score lets these financial institutions determine whether you’re a lending risk or not. A weak score indicates a higher lending risk. They’re more likely to fall back on repayments or even declare bankruptcy in the future.
The Side-Effects of a Bad Credit Score
There are several side-effects that come with a bad credit score. Here is a handful of examples:
Trouble with Loan Applications
People with poor credit scores have a harder time getting their loan applications approved by banks and other lenders. Whether they’re applying for a credit card or a car loan, they’re more likely to have their request rejected than someone with a Very Good or Exceptional score.
Higher Interest Rates
If a lender decides to approve a loan request from a client with a low credit score, they will likely modify the borrowing terms to match the lending risk. That means higher interest rates.
Difficulty Getting a Home
If you’re thinking of buying a house, you should know that mortgage lenders often reject applicants with lower credit scores unless they have co-signers or collateral available to reduce their lending risk. Renting an apartment won’t be a cakewalk, either. Landlords often run credit checks before approving a rental application. A low score could result in a higher security deposit or an outright rejection.
How Do You Fix It?
The good news is that a credit score isn’t written in stone. You can bring those numbers up and get better opportunities from lenders. An effective way to protect your credit rating and credit score — or to bring it into a higher category — is to sign up for credit counselling sessions with a licensed insolvency trustee. Credit counselling will give you the tools to responsibly use your available credit, manage your money and repay your debts. In time, you can become a low-risk borrower.
Before getting professional help, you should check your credit report for any errors or suspicious information. A mistake could be lowering your score. Or worse, you could be a victim of identity theft and credit fraud. If you spot something wrong, contact the credit bureau and/or the related creditor about the problem.
Depending on the numbers, a credit score can open up doors for you or close them. Don’t lose out on opportunities because of a lower score. You have the power to bring those numbers up.