Bad credit can affect more than just your ability to borrow money; it can also influence your chances of renting an apartment or even landing that dream job. To understand what bad credit is and ultimately how to repair it requires the understanding of how our financial system measures our credit. It turns out that measuring our creditworthiness and how likely we are to repay our debts begins with something called a credit score.
What is a Credit Score?
Well, to borrow money you’ll need to understand how lenders look at you. Lenders like banks and credit card companies use a scoring system to quantify how risky a borrower you are, the credit scoring used most often is called a FICO score. Credit score typically ranges between 300 and 850; the higher the score the better. Credit scores are made up of five factors to determine how likely you are to pay back a loan
- payment history (35%) lenders want to see your payment history to see whether you have paid back other loans in full and on time
- amounts owed (30%) borrowers may view people who carry a lot of debt as risky less likely to pay back loans
- credit history length (15%)
- types of credit and use (10%) this part of the equation looks at what type of credit a person has; credit cards installment, loans, mortgages etc.
- new credit (10%) lenders are on the lookout for a lot of new loan applications in a short period which is viewed as posing a greater risk and will lower a credit score.
How Bad Credit Affects You
Bad credit can make it harder for you to get a loan but it affects other things too, scores above 750 are considered good while numbers around 550 are not so much. Here are ways bad credit can affect you:
Mortgage banks will most definitely use your credit score to determine how much loan they will grant you, the interest rate they’ll charge, and how many years they will give you to pay back. If you have a bad credit, it may be harder to qualify for a mortgage. If you do qualify you’ll probably pay a higher interest rate because you’re considered risky. Click here!
Landing a Job
Employers can look at an employee’s credit score during the application process though they’re not supposed to deny a job because 47% of employers surveyed said they check credit scores of new job applicants.
Insurers may be unlikely to issue you insurance if you have poor credit, there may be a link between bad credit scores and making large or false claims on a home or apartment.
Water, Electricity, and Gas
Utility companies regularly check credit scores on customers; bad credit may require a person to put up a larger deposit.
If you have bad credit, you are not alone as it is that it affects up to 25% of Americans. Bad credit can limit credit the ability of an individual to qualify for mortgages and new loans, the good thing about this is that bad credit can be fixed by improving your financial habits. For more details, visit: https://www.business.com/articles/how-to-get-a-business-loan-with-bad-credit/