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Most credit card and loan borrowers know about a credit score and how it can impact their ability to access credit. An individual’s credit score can easily affect his/her daily life. Maintaining a good credit … Read More
Most credit card and loan borrowers know about a credit score and how it can impact their ability to access credit. An individual’s credit score can easily affect his/her daily life. Maintaining a good credit score is essential for availing of credit cards and loans at reasonable terms. A good credit score is important while applying for a new credit facility and there are many ways in which a low score can be increased.
Certain credit practices could lead to a low credit score. Here, we will go over some of these issues and also discuss how credit scores can impact our daily lives.
How does a low credit score impact our daily lives?
Here are some ways in which a low credit score can impact our daily lives:
House or Car Loan: A good credit score is important to get a good deal while applying for a home or car loan from a lender or bank. A good credit score can fetch you:
If you have a low credit score, your loan application could be rejected. There are also chances of lenders imposing higher interest rates or may offer a smaller loan amount as compared to your requirement.
Credit Card Limit: If your credit report shows a continuously dropping credit score, lenders may lower the limit on your credit card. This could be to curb your spending and limit your credit behavior. However, if you spend without paying heed to the reduced limit, your credit utilization ratio could rise and affect your credit score negatively. With a low credit score and shortage of credit, you could face a financial crunch very often.
Access to Business Loans: At times you may have a fabulous business idea but you may require a business loan to turn the idea into reality. This is when your previous financial behavior can impact your ability to create a bright future for yourself. A low credit score indicates that you have not paid your bills on time and are poor at handling credit. Lenders may not be willing to trust you with any loan or credit and this can make it tough for you to get the capital investment required to set up a business.
Debt-recovery Calls: Your credit score clearly shows whether you pay your bills on time or do not respect the due dates. If your credit score is low, it is an indicator that you could have been delaying payments and even defaulting on some credit payments. Thus, lenders will start chasing you to remind you about due payments. If you fail to respond, you can be served legal notices. Such reminders can easily become a hassle in your daily life.
What results in a low credit score?
Some of the consequences of a low credit score are as mentioned below:
High Credit Utilisation: The thumb rule while using any form of credit is to keep the credit utilization ratio under 10%-30% of the available credit limit. If you go beyond 30% of the available credit limit, it can damage your credit score. It is an indication that you are heavily dependent on your credit card and always in need of credit. This results in a poor credit score and impacts your ability to easily get credit in the future.
Delayed or Non-Payments: Your repayment history is an important contributor in determining your credit score. A late payment can significantly lower your credit score. Similarly defaulting on payments can have various negative consequences and reduce your credit score.
Frequent Loan Applications: If you apply for multiple loans with different lenders within a short period, it shows that you are hungry. Every time you apply for a loan or credit, the lender sends an inquiry request to credit rating agencies. These are recorded in the credit report and can be the reason why lenders may reject your application. This can hamper your credit score and result in a low score.
Negative Account Information: Your credit report contains a lot of information about your credit track record, such as foreclosure, bankruptcy, settled accounts, closed accounts, etc. Any of these statuses can severely affect your credit score and it could take years to recover from a poor credit score.
If you want to take charge of your daily life and not let lenders take over, you must ensure to make payments on time and keep a positive track record of credit behavior. In case you are facing any financial hardships, you must inform your lenders and request additional time for starting repayments. It will take a lot of time and effort to bring up your credit score and therefore, you must ensure to maintain it at a reasonable level at all times.