You are likely well aware that having a low credit score can basically make it impossible to qualify for most loans. This can make it hard to get financing for some of the fundamentals that you need in life, like a home or new car.
Missing a few payments and letting a credit card or two go to collections can affect you in many ways. Not only can it take years to rebuild your credit, but you’re also stuck making payments that you probably can’t afford. Here are a few reasons why having a low credit score can financially strap you even further:
Harsh Collection Practices
Having a very low credit score could mean that you have some outstanding judgment against you. These are legally binding court enforced documents that allow your creditors to come after your assets. For example, if you have a credit card that you defaulted on and stopped paying off the balance, the creditor can seize your assets, garnish wages and levy your bank account. If you have a judgment that just popped up, you need to take care of it right away to protect your assets. If you know you’ll get turned down by your lender, there are alternative loans for bad credit available. This type of loan allows you to get cash fast, pay off your judgment and keep the creditors at bay.
Higher Than Average Insurance Rates
Something you may not think about right away is your insurance. When you apply for home and auto insurance, the first thing they ask for is your social security number. This is to properly identify you and to also obtain a copy of your credit report. If your score is low, you won’t qualify for a premier rate. You could end up paying hundreds of dollars more for your insurance each year. The best way to keep this from happening is to either pay your premiums in advance or have it auto-deducted from your checking account. This could shave a few more dollars off your semi-annual premium.
Lower-Paying Job
If you are faced with troubled credit and you have some accounts that have been turned over to collections, you may pay the piper by remaining stuck at your job. Many executive positions or those that require working in financing or with the public require you to have a solid credit history. Many employers will run your FICO score to prove your creditworthiness and ensure that you’re financially responsible. If you keep getting turned down for a job because of your credit, it’s time to work on it. Start by calling your creditors and seeing if they will accept a payoff amount or deduction on what you owe. If you can offer them an immediate cash payment, they may settle your debt for pennies on the dollar. After you have it resolved, contact the credit reporting agencies, Experian, Equifax, and TransUnion and ask them to update their records. As you work on building your credit, you can then apply again to the positions in hopes of advancing your career and getting a better paying job.
Inadequate Health Care
Getting on a good healthcare plan can also be challenging. If it’s offered through your employer and your employer thwarts most of the costs of the policy, you’re in luck. Most of the time, premiums can still be steep, especially if you have a lot of family members to add to your plan. Having to pay for deductibles, premiums and out of pocket expenses is what many people are faced with having to do. Prescriptions, eye care, and dental are often not covered or only a small amount is covered. This leaves you with paying the rest out of pocket with your credit card. If you are maxed out on your credit cards, you’ll likely not qualify for a new one or extended credit on your existing cards. This results in going without certain procedures and medical needs, making you at risk for certain health problems. Using a payday loan or other personal loan that doesn’t require a high credit score will make it easier to pay for medical expenses as they arise.
Paying Higher Loan Terms Longer
If you already have bad credit, chances are your loans are maxed out and have high-interest rates. This means even though you’re trying to rebuild and re-establish your credit that you’re still stuck with high loan terms, even on a home loan. This means that you could be paying thousands of dollars more than the original loan or line of credit actually is. Work on paying it off and getting rid of the high-interest terms. Try consolidating to a loan that offers lower terms in the near future.
Having bad credit can make your life a struggle. Bigger payments, lower income, and difficulty getting ahead can be a challenge. Take small steps now to improve your credit and improve your future lifestyle.