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6 Things a Low Credit Score Can Affect

January 20th, 2018 6:20 pm | By admin | Posted In Business News

Most experts will safely say that your financial life is defined by your credit scores. They affect almost every financial decision or course of action you plan to take. Mortgages, loans, rentals, and even job alternatives may be severely limited if you have low credit scores which, according to FICO, are those between 300 and 629. Employers, insurers, landlords, banks, and other financial and legal entities use credit information as a way to evaluate your creditworthiness, reliability, and responsibility.

 

When calculating the risks of offering a service, companies will always evaluate a client’s personal credit information. Therefore, building and maintaining a solid credit history is a powerful tool to gain access to new opportunities, and it will surely have an impact on your quality of life.

 

For this reason, we want you to take a look at these 6 things a low credit score can affect.

 

 

1. Getting a Mortgage

 

Credit scores vary from one credit bureau to another but what doesn’t vary is the fact that your credit scores will be a determining factor in whether you get a mortgage or not. Low credit scores mean your mortgage applications will be probably rejected or, otherwise, if you get one approved, the interest rate charged on the principal will be much higher than the average rate.

Lenders usually have strict rules to approve a mortgage, including optimal credit score levels expected from the applicant. Most agencies use versions of the FICO scoring software to evaluate a client’s credit score, and in other cases, they employ the services of credit bureaus such as Equifax or TransUnion to get a client’s credit information.

Generally, lenders take into account the middle figure between three credit scores reported by different methodologies or sources or the lowest of two. In this process, as a borrower, you might have a cosigner, so it is important for you to evaluate your cosigner’s credit score before applying for a mortgage to verify that his low scores won’t affect your application.

 

 

2. Getting a Car

 

Your credit score will also define whether you qualify or not for a car loan and you should consider this carefully as buying a car is one of the most usual borrowing requirements a person can have.

Car loans are typically easier to get even though you may have low credit scores but the interest rate and the total amount of the loan will be affected by this. Most lenders will negotiate a higher interest rate in exchange for taking the risk of lending you money if you have a poor credit history. In this regard, low credit scores can cost you much more money than you were planning, so you may want to consider getting them up to reduce your interest expenses over time.

 

 

3. Getting a Student Loan

 

The credit score you need for getting a student loan will depend on the type of loan you are requesting. There are no specific credit requirements for most federal student loans but, in some cases, a low credit score can affect the interest rate or the size of the loan you’ll get.

The first thing you should know is your three-digit credit score. You can sign up for our Credit Monitoring service for that. If your scores are higher than 600, that is already good news for you. On the other hand, low-interest rates can be obtained if your scores are above 720. However, each lender has its own requirements, and this is not an exact science.

The best way to go through all this process is to complete an application for a rate check and figure out which are the exact requirements and the screening process for the loan, in order to get your profile organized accordingly. If you do have very low credit scores, you might need a cosigner to qualify for a student loan, which is a person who will take the responsibility of paying for the loan in the event that you fail to do so.

On the other hand, your performance in paying on a student loan will affect your credit score substantially. This is an important element to keep in mind, as your credit scores should be sensibly cared for. For example, either paying a student loan punctually or late will influence 35% of your credit score. Therefore, for young people with no credit cards or auto loans, paying on time is the best way to start building a solid credit history. Besides, the longer your repayment periods are, the longer your credit history will be, and the length of your credit history also affects 15% of your credit score.

 

 

 

4. Getting Credit Cards

 

Your credit scores indicate an estimate of how reliable you are as a borrower. It is a picture of how likely it is that you will default on a loan or a credit line. Therefore, before a credit card is approved by a financial institution, your personal information, including your credit history, will be thoroughly evaluated.

Typically, several months of solid credit history including on-time payments and well–managed credit balances are standard requirements for getting credit cards. Late payments on your credits and loans will cause a big drop on your credit scores as they will indicate that you’re a risky borrower.

Additionally, the annual percentage rate (APR) of your credit card will also be determined by your creditworthiness. Usually, it will range from 13% to 23% depending on your scores and history, which means you can save up to 10% annually on interest charges if you get your scores up. To sum up, low scores mean low credit limits and high-interest rates.

 

 

5. Getting Good Insurance Rates

 

Insurance companies always modify prices and service offers according to their client’s profiles. An individual’s credit score is one piece of information they collect to define the insurance products you may be suitable for, as it is the best indicator of your financial stability.

For auto insurance, credit scores are not crucial. Some consumer groups have explained that setting auto-insurance rates based on credit scores only breaks along with the safe-driving encouraging atmosphere and discriminates lower-income drivers. On the other hand, your scores can be combined with your insurance claims ration in order to create an ‘insurance score’. The lower the score, the higher your auto insurance premiums may be.

A similar situation happens with health insurance since keeping you healthy is more important than your credit scores. However, whether you pay your bills on time or not is something insurers want to know about you. So, in this regard, your scores will affect your ability to finance your insurance premium and the interest rate you pay on such loan. Finally, homeowners with low credit scores are expected to pay 32% more for their insurance policy.

It is important to find out how much your credit scores weigh in determining your insurance premium, as each company uses different standards and criteria to determine your rate, which could mean cheaper premiums and considerable savings in the long run.

 

 

6. Starting a Business

 

Starting a business from scratch or getting funds for expansion purposes requires large cash amounts that aren’t always available and you might need a business loan to make that possible. As with any other loan, a minimum score ranging between 600 to 700 is usually required to apply for considerable business financing.

We recommend that you improve your credit score substantially before applying for funds. Some steps you can take to do so include paying your bills on time, keeping your credit balances low, and opening new credit lines only when it is necessary. You should check your credit report frequently to avoid any negative items or mistakes on it that can affect your scores.

 

As you can see, your credit scores have an important influence on your financial needs. Whether you are battling with low credit scores or you are looking to get rid of negative items on your report, our wide range of credit solutions are here to help. Here’s a comprehensive list of our services:

 

 

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