To an individual, the cost of having bad or negative credit goes beyond having to pay extra interest. Bad credit may have a number of serious consequences that can make life extremely hard and inconvenient-from getting a place to live to securing employment. Here are some of the distressing consequences of bad credit.
Difficulty in Accessing Housing
If a person is a renter, not a homeowner, some property management and landlords do credit checks before agreeing to lease or rent their houses or apartments. Unlike other forms of financing such as personal bad credit loans for people with poor credit, these credit checks are performed to see if you can get housing.This practice is also allowed by federal law. If the credit report has a bad or poor score, one can even be denied housing. The effect of this is that the individual is unable to turn on utilities in his or her name, especially if there is a previous history of nonpayment of bills.
There are many states that permit insurers to impose higher rates on drivers with low credit when they insure their vehicles. In addition, denial of coverage is also allowed. The thinking is that if one is irresponsible with finances (which is evidenced by lateness in prompt payment of bills) this indicates likelihood of being irresponsible when driving. Insurers also contend that low credit scores are statistically correlated to filing of higher claims. This theory makes them check ones credit and charge higher premiums to those with poor credit scores, regardless of the claims they have actually filed. This thinking is also
applied by other insurers including health insurance companies. Essentially, having bad credit may end up costing a person hundreds of dollars in extra premiums.
A bad or poor credit score can also affect a financial institution’s or bank’s willingness to allow a person open an account with them. This may mean not having access to checking accounts, saving accounts and debit cards which make life convenient. There are, however, online loans for bad credit and banks which specialize in loaning people with bad credits. Whereas some people with bad credit can live without the convenience of credit cards, by using alternatives like pay-as-you-go or secured cards, there are certain necessary product and services that are badly affected by bad credit scores.
A person’s credit history may affect employment and job performance. Federal law permits workplaces and employers to pull applicants’ and employees’ credit reports. Moreover, the information held in those reports and files can be considered when hiring, disciplining, or even terminating an individual. Presently, only ten states limit employers from accessing ones credit report or even using it when making hiring decisions. According to studies done in 2013, about 10 percent of individuals were denied employment based on information gleaned from their credit report.
Obtaining Loans May Present Difficulties For People with Bad Credit
A person with a bad credit score and in a financial emergency may be forced to turn to what are normally termed as lenders of last resort. Obtaining a personal loan or installment loan can be tough if you have bad credit. These lenders will normally levy exorbitant interest and charges and the loans are given under highly punitive terms to the borrower. These include:
Many auto financing lenders offer great rates like 0% loans to entice buys to their program. However, unless you have excellent credit it is highly unlikely that you can qualify for these auto loans. If you have suffered from some credit blemishes some lenders will even turn you down altogether because of poor credit issues.
Thankfully, there are some companies that actually specialize in credit problems and are will to provide financing for automobiles. These poor credit car loans for people with bad credit generally have a higher interest rate but are a good alternative to re-establishing your credit rating.
For a payday loan, a person draws a post-dated check for the borrowed amount plus a certain fee ,say, fifteen dollars for each hundred dollars borrowed. The payday lender retains the check until the borrower is paid. On payday, the borrower can either take cash to the lender in exchange for the post-dated check or allow the lender to deposit the check. The borrower may end up using all the paycheck to repay the loan which may lead to taking another loan to settle recurrent bills. Another common option is the borrower asking the lender for additional time to repay which entails paying the fee again.
Pawn Shop Loans
These loans involve leaving a valuable item like jewelry at a pawn shop and the pawnbroker advancing the money, which is normally a third of the item’s worth. If the loan is not repaid in 30 or 60 days (depending on the agreed terms), the pawnbroker may commence selling the item. Because the loan is secured by the item, no credit check is required. As a result pawn shops are a popular method of getting credit, especially those with bad credit.
If one owns a car and holds its title, it is possible to access a title loan. The person borrowing hands over the title to the lender in exchange for the loan amount. The lender retains the title until the loan is repaid, and charges high interest rates and fees for this. The minimum monthly repayments may often exclude principal payments, meaning the borrower can pay a high amount of interest without completing repayment of the principal loan. If the borrower is unable to repay the lender can then use the car title to sell the car.
Additional Subprime Information.