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Overwhelmed by the Complexity of Loans? This May Help

The Effects of Bad Credit

In financing, the numerical representation of an individual’s credit value based on a degree of analysis of the individual’s credit profile is referred to as a credit score. A credit score is basically a yardstick measure for borrowers to get a loan, such that financing companies produce a credit score, ranging from 300 to 850 with 850 as the highest score, for a borrower with a Social Security number using data from the person’s previous credit history and lenders use a credit score to evaluate the probability that a person repays his debts. Credit scores have great influencing impact on a borrower’s personal finances, as well as affecting your capacity to borrow, such that if you’re not performing well with your credit score, which means you’ve got bad credit, the following effects are bound to impact you.

Difficulty borrowing money

When your credit score is low, the less likely will you find a willing lender or it will directly affect your likelihood of securing approval for a new loan or a credit application. Many lenders don’t make loans where the credit score falls below the accepted level, for example, your score is 698 and the qualified score is 700, it just shows that even if your score is almost close to the cut off score level, you will have difficulty borrowing for a new loan.

Confronted with higher rates when you borrow

Money lenders and financing companies are relying a lot on a borrower’s credit scores such that when a borrower’s credit score is a few points way below the qualified score, his chances of borrowing may be slim but if he gets his loan approved, he will be confronted with a higher rate and with additional restrictive terms from the lenders or financing institutions. An interest rate difference can add tens of thousands of dollars to the total cost of a mortgage, depending on how the loan is structured, but the same principle applies to auto loans, home improvement loans, personal loans, and credit cards.

Trouble renting an apartment

If you’re applying for an apartment lease and your credit score is low, the landlord will likely demand for a pre-lease credit check, but this depends on the kind of apartment you intend to rent, because well-kept, modern apartments in a desirable neighborhood will require a higher credit standards compare to substandard dwelling units in undesirable areas, where landlords may be lenient to the credit score.

Difficulty to find jobs

Your credit status can be a part requirement in job applications by some companies, most especially on positions that require a security clearance. Even if the practice of hiring an applicant requires a credit status check is banned or restricted in a handful of states in the US, still it doesn’t stop employers from doing the checking rounds because ideally an employee can work efficiently if there are no distressing factors, which he/she is carrying, one of which is a bad credit.

Stress on personal relationships

Your credit score together with your overall credit profile can break or not your family life, as well as your personal relationship, since both you and your spouse’s credit profiles can affect your ability to qualify for an auto or home loan that you’re applying together, as lenders look at both profiles and assess your household’s overall credit risk. If one of you falls lower in the credit qualification, most likely a higher interest rate or a larger down payment will be required and, if you fall behind payments, you not only suffer the consequences of a low credit card score, but a strain in your family relationship is also gradually developing as an outcome of stress from being confronted with these financial issues.

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