Ways by which bad credit affects you
There is often a stigma attached to having bad credit. This doesn’t mean anyone set out to be irresponsible; sometimes medical bills or other unexpected items come up, putting us in difficult financial positions. Other times, the mistakes of youth stick with us on our credit report much longer than we would like.
Regardless of how you got there, if you are dealing with poor credit, it’s a good idea to make sure you understand the effects it can have on your financial freedom.
How Having Bad Credit Hurts You!
Having a poor credit history or a low credit score can seriously impact you financially. One thing that can happen is you could be denied a line of credit. A low credit score indicates to lenders that you are a high-risk borrower and they may not be willing to lend you money.
Another issue that could arise from having a low credit score is that even if you aren’t denied credit, it could be more expensive for you to get credit. You may have to pay more in fees or a higher interest rate, which increases your monthly payment. Loans of this type are known as “subprime loans.” Even though they usually come with a higher interest rate, they can help you consolidate debt and pay off credit cards.
What Bad Credit Does to Your Mortgage?
If you’re applying for a mortgage, less-than-perfect credit isn’t a total deal breaker. However, there are some things you should be aware of in order to make the mortgage process smoother.
Negative Credit Items
If you have certain negative items on your credit report, this could also affect your mortgage process.
For example, when you’re applying for a mortgage, your current and past mortgage payment history will be reviewed. There’s a limit to how many times you can be late with a mortgage payment in a 12- or 24-month period. The exact criteria vary by the type of loan you’re applying for.
It’s common that open liens or judgments and collections have to be paid off before you can move forward with a mortgage.
Finally, if you’ve had a bankruptcy, there’s usually a waiting period before you can get another mortgage. This depends on the type of loan you’re applying for and the type of bankruptcy that was filed.
What Does It Mean to Have a Low Credit Score?
Now that you know the score ranges, let’s go over how to determine how your credit stacks up. I’ve split these up into ranges based on how they would potentially affect your mortgage rate. The standards for other types of loans or credit may vary.
Your mortgage rate is affected by not only your credit score but also the size of your down payment or – in the case of a refinance – how much equity you have in your home.
Here’s the breakdown:
- 300 – 579: new or poor credit
- 580 – 620: OK credit
- 621 – 740: good credit
- 741+: excellent credit
New or Poor Credit
If you’re at the lowest end of the credit score scale, you may be new to credit. If your score is right around 300, you’ll need to start somewhere to build up your credit before you apply for credit cards, auto loans, and a mortgage. But how do you start?
One common way to get started with credit is to open a secured card. With a secured card, your credit limit is based on a deposit of your own money. This means that if you failed to make the payment, the lender can just take the money out of your deposit. They’re not really taking a risk, and as you pay off the balance every month, you’re building up a credit history. In 6 to 12 months, you can apply for a regular unsecured credit card where the bank is the one giving you the credit limit.
Another way to build good credit early on would be to become an authorized user on the credit card of someone else who already has good credit. That way, your credit score starts to build every month when the payment is made on time.
If you have a poor credit score, take a look at your credit report so that you can dig deep and truly understand what any issues are and then come up with a plan of action.
Great talking guys… now that it is clear how a bad credit score can affect you getting help with achieving a decent score would not be much of a big deal because it would actually be a plus in your day to day life.