Remember back in highschool how you feared what your failing grades on your report card would mean for your college acceptance? Well unfortunately, you may experience a similar sense of dread if you have a bad credit score, as poor credit reports can limit your financial future.
However, understanding the implications of bad credit can help you turn around your current financial situation and future. And despite common misconceptions, you do have options if you are struggling with a poor credit report.
1. You May Experience Negative Effects from Bad Credit
A low credit score often signifies poor financial responsibility as it reveals your borrowing and repaying history. So when it comes time to ask for a car loan or a mortgage loan, potential lenders will refer to your credit history and decide whether they trust you to repay them. If your score reflects poor financing, some of these lenders may refuse you, while others will charge pricey fees and interest as a security measure.
Similarly, when you’re looking to rent a home or an apartment, your landlord will probably want to take a peek at your credit score. If your credit score isn’t so hot, your landlord could think twice about accepting you as a tenant. And in other cases, the landlord may require that you pay an additional security deposit to cover any late or missed payments.
2. You Can Repair Your Credit Score
There are ways to repair your bad credit score, but to do so, you must prove to creditors that you are displaying responsible financial habits.
You could start by paying your existing bills on time and working to reduce your debt. It’s a good idea to meet with a financial advisor or a credit counseling organization to educate yourself on ways to budget and manage your debt. You can even receive guidance on how to create a repayment plan that is manageable and within your limits.
Do not simply accept a bad credit score. Actively seek out ways to improve your credit report!
3. You Can Build Credit
Another way that you can work towards fixing your low credit score is to build credit. Although many credit card companies will not issue unsecured cards to you if you have a poor credit score, some will offer secured credit cards. These secured card issuers do require that you pay a security deposit though because you are still considered a financial risk.
When applying for this kind of credit card, first make sure that you are in a position to make payments on time. These card issuers can send your new credit history to the credit bureaus, so if you demonstrate responsible financial behavior, your credit score will eventually reflect this. Keep in mind though, if you’re delinquent with your payments, the credit card company will report your missed payments to the credit bureaus as well.
4. You Can Take Out Emergency Loans
While you’ll find that many traditional banks and lenders will refuse to lend you money if you have poor credit, you can apply for online payday loans. These cash advances usually do not take into account your credit history. However, because you are considered a financial gamble, bad credit lenders do enforce high interest rates and expensive fees.
Although it’s an easy way to receive fast cash, bear in mind that you should only use this outlet as a one-time fix for an emergency situation. Do not take out a bad credit loan to cover another loan, and more importantly, do not apply for payday loans if you cannot repay in short order. Misusing a payday loan will only add to your financial troubles and poor credit score.
Just like you had to work to improve your report card in highschool, you need to do the same for your credit score. Don’t settle for a satisfactory credit score, and if you start to feel overwhelmed, consult a financial adviser for guidance.