There may still be a lot of individuals who do not understand what a credit score is and its importance in our lives. And there may be many more who know about credit scores but not about the role it plays. Whether we accept it or deny it, credit score does play a big role in our financial lives, unless someone manages to live their entire life without credit.
But considering the modern-day life which is so high on consumption, it might seem very difficult for someone to live without credit. From buying homes to cars to gadgets, holidays, education, weddings, moving places or evenmedical emergencies, everything can be managed with the help of credit.
And to add to it, credit cards have made our lives much simpler with the provision for both online as well as offline usage. From payments for shopping at the malls to ordering groceries to food to paying for cabs, everything can be done with a credit card, even without having cash in your bank account at that point in time.
So, life without credit would seem quite difficult to imagine, right?
If there is one thing that is needed to get all your credit applications approved each time you apply for one, it is a good credit score. We do not deny that you need to have sufficient repayment ability or that other factors are also counted, but they all come after ensuring that you have a good credit score.
Additional Reading: How to Monitor Your Credit Score
Did you know a poor credit score features among the top reasons for which loans or credit cards are rejected?
Ways In Which Your Credit Score Can Affect Your Life
- Rejections on Credit Applications: The need for credit can arise at any time. It may be a medical emergency or a booking amount for the home you always wanted to buy; if the need isn't fulfilled at that particular moment in time, you may lose out the opportunity.
Being credit healthy or having a good credit score is one of the cornerstones of ensuring that your credit applications get to the approval stage. It would hurt very badly when your need for credit is rejected when you need it the most.
Not only does a loan/ credit card rejection leave you in the lurch at the moment of need, it also ends up taking your credit score down. Let’s look at how.
Each application of yours will result in an enquiry by your lender for your credit score and credit report with the credit bureau. This is also known as a hard enquiry. Generally, when you are rejected for a loan from a lender, the tendency is to apply it with someone else. As the number of applications increases, so does the number of hard enquiries, which does more harm to your score.
It may sound very trivial, but loan rejections may have far-bearing consequences. Think of a student whose higher education dreams were shattered when his education loan was rejected as a result of bad credit score. Or when someone could not get a loan to renovate their ancestral home.
We at CreditMantri can help your improve your credit score and make you credit healthy, so that you remain eligible for credit whenever you may need it.
- Loans or Credit Cards on Unfavorable Terms: When you are approved for a loan or credit card, you expect it to come at the lowest possible rate of interest and at other favourable terms. However, one of the biggest consequences of a low credit score is higher than normal rate of interest on your loan, short tenures (leading to bigger EMIs), or a bigger down-payment for secured loans such as home loans or vehicle loans.
These terms can easily increase your financial burden.
Higher EMIs during the entire tenure of the home loan can easily set you back by a few thousands or even lakhs depending upon your loan amount and tenure. A shorter tenure on a personal loan would mean that your EMIs go higher.
Similarly, when your down-payment figure increases, you would need to shell out extra money or look for another loan/ other sources of funds to make good the amount needed for down payment.
On the credit card front, you may be issued with a prepaid credit card or a card against a fixed deposit. Both these options come with less number of provisions than a normal credit card.
- Disturbs your Mental Peace and Well-being: A low credit score can also have other effects on your life. When you are rejected for a loan or card, and the need is a pressing one, you may end up borrowing from the unorganised sector at exorbitant rates of interest or pledge some of your belongings.
These factors not only cause great inconvenience but also affect your mental peace, when you would have to approach multiple lenders for credit. This also takes a toll on your overall quality of life, including work life.
Additional Reading: Is Credit Score Affecting the Quality Of Your Life?
So, the lack of a good credit score can manifest in more than one ways. In the recent times, even employers have started demanding credit reports from their future employees to ensure they have a good credit score. This has been a practice in some sectors like insurance, telecom, regulatory bodies, but is slowly catching trend with other employers too.
Individuals with good credit score demonstrate their ability to keep up their commitments and are also construed to be free from unnecessary distractions from having a poor credit score.
A bad credit score can negatively affect your life in more than one way. It is akin to maintaining your health or fitness; you need to be at it on a regular basis to see long term results. In the similar manner, you need to take care of your credit health by checking your credit score and credit report frequently and taking actions to improve the score, if need be.