3 Weird But Big Ways Bad Credit Can Negatively Affect You
The dragon is a majestic celestial creature that is often associated with positive things like wealth, health, and prosperity. But is can also be used in a strange way to describe bad credit. Because bad credit very often leads to a spiraling downward effect on your financial lifestyle. OK, that was a lame metaphor. Pardon the child in me.
When we make that extra effort to pay off our liabilities for the sake of credit scoring, the main problems that we are trying to avoid are problematic loan approvals in future or higher interest rates on facilities like mortgages. Those are things that can have a big impact on our lives. But there are actually other areas which bad credit can negatively impact your life just as much as difficult loan approvals and high interest rates.
1) Insurance premiums
It might come as a shock to you. I was stumped as well when I first read about this. But research have been conducted, maybe in laboratories with white mice, that consumers with bad credit have a higher probability of filing frequent insurance claims as well. And this higher risk will translate to higher insurance premiums. This is if the insurer is comfortable enough to offer you a policy at all.
It can sound like a turn-off that insurers rate higher probability of claims as a higher business risk. Isn’t their business based on premiums and claims after all? Where is the ethics when you sell a policy but hope that no claim is filed at all during the life of the policy? But that’s not what we are discussing in this article.
I think that in a weird manner, most people can see a link between being a bad paymaster to being a serial claimant. If someone has no qualms with taking a loan and refusing to pay it back, there is a probable chance that he would work the system to file more claims as well. It more about the mental approach people have on financial matters. The point is that you can expect higher premiums for your insurance if you have bad credit.
2) Renting a home
Leave it to an eccentric landlord to come up with multiple screening factors when evaluating an tenant to rent to. One of the now very common criteria of screening potential tenants is to pull up your credit report to scrutinize.
This means how obedient you are at complying to your car loan repayment can determine whether a landlord rents to you.
In this aspect, you cannot really blame a landlord for doing this. If you are a landlord, you would probably want to do that as well. Landlords have their investments to protect. And their business is to buy a house and rent it out for recurring predictable rental collections.
In certain cases, landlords can go under from a lack of cash flow. So a defaulting tenant can cause huge financial stress to the property owner. Nasty tenants who destroy a house or treats a landlord like a personal 24-hour hotline can be usually tolerated by most landlords. But a failure to pay rent is grossly stepping over the line for someone treating real estate as his business.
Therefore, a potential tenant who has adverse credit will undoubtedly raise the alarm to a landlord. It does not mean that the tenant will surely fail to make timely rental payments. But for a business owner, any amount of risk is not worth taking if the easy alternative is just to sell to another customer.
To offset the extra risk a landlord is taking, he might insist that he would rent to you on the condition that you pay extra rent. You might also be asked to put down a higher security deposit than normal. Or what you will most likely encounter is a refusal to rent.
The one scenario for a landlord which is worst than having a rebellious tenant is to be stuck with one.
3) Career opportunities
The way you manage credit is a reflection of how you manage your finances. For someone who is not a lifelong friend who knows who you really are inside, the only dependable way to judge your money management skills is to check your credit history. If we put it that way, it sounds just about right.
Most employers probably don’t make credit checks as a standard operating procedure when hiring. But there is also a growing number that do. The logic is that if you have no problems managing your personal finances, you will be less likely to steal from the company. You will be in a more healthy emotional state to handle your job requirements as well.
Whereas if you are deeply in debt, an employer could probably justify to themselves that you might not be such a good bet after all. This is especially when they have a huge number of candidates to choose from. A candidate showing signs of being in financial turmoil really doesn’t seem to be a good match for a job in accounting or payroll, etc.
There were instances in my career that the first thing I heard about a new colleague was that he had asked for a salary advance. I know. We shouldn’t judge a person on the surface. But it sure does not create the best first impression.
If you are in the banking sector, you will probably expect your credit history to be pulled up. Lenders and banks champion good credit. Surely you must expect them to walk the talk.
I don’t have the facts. But I would say that if you are pursuing a career in the banking sector. You must absolutely maintain a satisfactory credit record so as not to jeopardize your career development opportunities. You don’t need a famous quote from a financial guru to make sense of that.
Keep a good credit score
As you can see from the above 3 points, your credit score can have a material impact on your life in ways that you might have never thought of before. And these consequences are not minor things to be laughed at over the dinner table.
Actually keeping a good credit record is not as difficult as some people think. All you really have to do is to repay what you’ve borrowed each month. It’s not rocket science. You shouldn’t be spending money which you are unable to repay anyway.