Getting your first credit card could have brought you an immense joy as you are given pre-approved credit card just based on trust and relationship. You might have gone on a spending spree right after you had obtained the card without realising the impact of repayment aspect. A sudden medical emergency sprouts up, putting your finance at stake. There could be a lot of reason why your finance might have turned bad. However, none of the reasons matter to the creditors. What matters most to them is that how good is your three-digit credit score. Having a bad credit score can impact you negatively in various aspects especially in terms of credit-related activities. Following are some of the major impacts that a bad credit score can leave on your financial and personal life.
#1. Future Borrowing Becomes Difficult
Any lender would access your credit score and check your credit history before processing the loan or credit card application. No matter how desperately you want to get funds, the chances of approval are slim with bad credit score. The past mistakes could be a hindrance to avail any form of credit. Even just one negative issue can have a negative impact on your future borrowing. The lenders want to be assured of your repayment ability and capacity. It is recommended to check your credit score before applying for a loan and take steps to repair your credit score if it has dipped considerably.
#2. Unfavourable Terms on Loans
We can’t completely disagree that getting a loan with a bad credit score is impossible. Though getting an unsecured loan could be harder, individuals with bad credit score can obtain secured loans from certain lenders. However, the borrower may not enjoy favourable terms on the loan. The interest rate would obviously be higher as your credit score would bel low, which would show you as not a reliable customer. Considering the risks associated with your credit profile, the creditors charge higher interest rate on your loans. Despite getting approved for the loan, securing a higher loan amount may be restricted as you are a risky borrower.
Additional Reading: Side Effects of a Bad Credit Score
#3. Hindrance to Job Opportunities
Though checking one’s credit score by an employer is not much prevalent in India, certain job opportunities such as banking services and jobs that involves finance will require a good credit score. A good credit score is a reflection of your accountability in your financial life. Hence, a certain financial discipline is expected by the employers to rely on you with official responsibilities. In such scenario, your credit score becomes the yardstick to measure your reliability.
#4. Imminent Strain on Personal & Social Life
Being in a large amount of debt certainly can mess up your personal and social life. Money is the primary source that helps in leading a happy life. A bad credit score can create unnecessary stress in your personal relationship. As the borrowing becomes nearly impossible, an immediate financial emergency can push you in a difficult situation. When you plan to apply for big-ticket loans along with a co-applicant, it could be hard to get better terms. Higher interest rates and larger down payment could be inevitable.
#5. Starting a New Business May Be a Challenge
You would require funds if you plan to start up a new business. With a bad credit score, borrowing from banks, NBFCs and online lenders could be quite a challenging task. The lenders would hesitate to process your business loan application as your past credit activities would be negative. You must clear the outstanding payments or any other negative issues to avail a business loan.
Despite your bad credit score, a secured loan can be obtained by pledging your collateral. However, the terms on the loan could be not so favourable to your credit needs and repayment.
#6. You Might Have to Face Legal Actions from the Creditors
When you continuously default on an unsecured loan or credit card bills, the lenders might notify regarding the repayment. If you continue to ignore it and refuse to pay back, the creditor might send you a legal notice against you. Though you have an ample notice period, a lawsuit can complicate the matter and make it impossible to avail credit in the future. Before the situation gets out of control, it is better to resolve the issue off the court by negotiating with the creditor.
#7. Your May Lose Your Asset/Property
Auto loan, gold loan, home loan, plot loan, loan against property, etc., are secured loans wherein the property or asset becomes the security for the lender. As per the terms signed by you, the lender has the right to confiscate the collateral when you default on the repayment continuously. The lender will try to recover the losses by selling the asset through an auction. A bad credit score can put your property at risk and hence it is recommended that you either extend the tenure or negotiate with the lender for better terms.
How to Fix Your Bad Credit Score
A bad credit score doesn’t mean that you were totally irresponsible. A sudden medical bill or an unexpected item came up, putting you in a tight financial spot. You can always get back on track by taking strategic actions towards clearing the bad credit.
Firstly, find out the factors that affect your credit score. It could be due to non-repayments or an error in the credit report. After finding out the negative issue, approach the lender to figure out ways to clear the issues. In case there is an issue with clearing the outstanding dues, talk to the lender for better repayment terms. Once you complete the payment, the creditor reports your credit activities to the bureaus. Post update, your credit score will show a change.
If you find it difficult with the process of clearing the negative issues, you can also look for credit improvement services offered by reliable and trustworthy credit repair companies, like CreditMantri. They will work out the ways on your behalf and help you improve credit score.
Additional Reading: Top 10 Tips to Improve Your Credit Score
A bad credit score is certainly not a good thing on your credit profile. However, you can always get back on track to good credit health. You must also remember that there are certain procedures to be followed and it will take quite some time to improve your credit score.