An individual’s history of failures to pay his or her bills on time is referred to as bad credit. It is also seen by many financial institutions as irresponsible behaviour. According to them, a person with bad credit might not make timely payments in the future as well. This is not restricted to individuals. Even companies can have bad credit based on their current financial situation and payment history.
Bad credit leads to a low credit score. This is used as a reference by the financial institutions while making their lending decisions. Here, we’ll walk you through some of the major disadvantages that you may have due to bad credit:
1. Getting a job becomes a challenge
During your job interview, your potential employer probably won’t just ask for a list of references. The company may also seek your permission to run a credit check. This happens in the case of certain roles, which includes positions in management.
Usually, this is to know whether the person being interviewed can be trusted for making financial decisions. In a survey done in 2016, nearly 29% of employers revealed that they run credit checks. So, it is important to remember that bad credit may also limit your ability to get a job.
2. Difficulty in getting a loan
Now, this must not come as a surprise. Banks would definitely want to know the chances of you paying them back. This is of great importance to them before they decide to give you a loan. A credit score shows how good you are with your payments.
A low credit score would make it difficult for you to get a loan or a credit card. A credit score that’s between good and excellent is generally preferred by many banks and other financial institutions. If you don’t qualify, you’ll have to settle for a loan with high-interest rates.
3. Lesser options in renting
Borrowers are not the only individuals who need to worry about bad credit history. Your bad credit might also trouble you if you’re trying to rent a home. Many of the landlords would want to know your ability to pay them on time. For this purpose, they’ll obtain your credit report.
If you’ve made some blunders in the past, getting a new home can be tough. If your credit history doesn’t look convincing, the landlord may demand a higher security deposit.
4. Trouble in setting up utility accounts
When you’re trying to set up an account with a utility company, your bad credit would become a hurdle. Before signing up, customers with low credit scores might have to pay a deposit. Even starting your service with a cellphone provider can be difficult with bad credit.
If you don’t have a good credit score, you might have to opt for a prepaid plan. It’s also likely that you’ll have trouble qualifying for attractive deals on the most sought-after cellphones.
5. Higher costs of insurance
Certain types of insurers might take a look at your credit reports. If you have bad credit, there are chances of you being at fault in an accident. This is their general assumption. Life insurance companies don’t generally use credit scores as a part of their underwriting process. However, if you’ve got a recent bankruptcy, you’ll find it harder to get a policy.