The Impact of a Bad Credit Score

Bad credit can prevent you from starting a business, from buying a car, or from buying (or renting) a home.  On the other hand, good credit gives you better rates, more borrowing capacity and more negotiating power, With discipline and awareness, one can easily start establishing good credit or repairing bad credit.

Recently, employers have been screening their candidates’ credit history. Not only is it getting harder to get access to debt with a bad credit score; today it even bars access to income. The realities of your bad credit score are:

1.     high interest rates

2.     creditors and lenders will not approve your application

3.     high insurance premiums

4.     difficulty starting a business (no matter how good your business plan or idea is)

5.     calls from creditors and collection agencies

Establishing good credit isn’t difficult and repairing bad credit isn’t impossible. Discipline and knowledge of how to build credit value are essential. Five components enumerate a credit score.   

1.     35% is payment history

2.     30% is based on a credit-utilization ratio which equates to

credit available ÷ debt

3.     15% is the length of credit history

4.     10% is the variety of credit accounts

5.     10% is the amount and frequency of credit inquiries

Everyone is allowed one free credit report per year. It’s important to first address any major events on the report that are public record like charge-offs and bankruptcies. In cases where a credit score is so bad that you stop getting approved for major credit cards, apply for a retail card or a card that requires a security deposit. If you’re waist deep in a bad credit score, the financially savvy thing to do is start repairing it immediately.