A credit score is one of the important indicators of your financial health. Having a good credit score is essential for getting approved for low interest rate loans, getting a credit card with desired credit limit or even for getting employment. Your credit score impacts your everyday life in many ways.
To avoid ending up having a bad or low credit score, it is generally advised that you work to keep it as high as possible. You should pay your bills on time, use only 30% percentage of the credit you have access to, and maintain a healthy balance of credit to help your credit score increase. But how significant is your credit score in terms of your long-term financial security, and how may it affect your day-to-day activities?
Your financial life is greatly influenced by your credit score. They help creditors in determining if you pose a good risk. A loan may be approved or denied based on your credit score. It may also affect the interest rate you pay on the loan that you have applied for, which may increase or decrease the cost of your debt.
However, credit scores are taken into consideration in other situations as well. Credit ratings are frequently used to judge who you are as a borrower.
Ways a Low Credit Score Impacts your Life
There are only a few obvious ways that your credit will affect how you live on a daily basis, but your credit score can ultimately have a big impact on your life. From impacting the loan rates that you get to getting hired by your dream employer – a low credit score can impact your daily life in various ways.
Listed below are some of the ways a bad or low credit score will impact your day to day activities:
- Getting a loan
While assessing your application, banks, lenders, and credit card companies will examine your credit score. Your credit score will be used to determine your loan or credit card interest rate, if your application is approved. Your likelihood of approval and a low rate increases with your score. However, additional elements including your income, outstanding debt, and creditor history might also affect your loan rate. A low credit score will attract higher interest rates on loans.
- Buying a car
Even if the vehicle you want to buy is being used as a collateral for auto loans, lenders will still evaluate your credit to establish your eligibility and rates. If you have good to exceptional credit score, you can be eligible for vehicle loans with the best interest rates. Additionally, it can make you eligible for special financing deals like those with 0% interest for a certain time. However, with a low credit score, there is a chance that some of the financers or lenders may reject your loan application altogether.
- Getting employed
Employers would want you to have a good credit history. Even if you currently have a job, a low credit score may affect your chances of getting a promotion or keeping your current position.
It is a widespread misconception that your employment is unaffected by your credit score. A lot of companies in India have started conducting a background check on your credit score. Hence, maintain a good credit score as a low score may impact the chances of you being hired in your dream company.
- Debt or collection calls
Your credit score indicates whether you pay your debts on time or not. When your credit score is low, it indicates that you have been making late or maybe no payments at all. Lenders attempt to contact you in this situation to remind you to make the payments. They will contact you and send you legal notices if you dont answer. Your daily life will become chaotic as a result of all these reminders.
Your life may suffer from a low credit score in a number of ways. It is similar to managing your health or fitness; in order to see long-term improvements, you must be consistent. In a similar way, you must maintain the health of your credit score by regularly monitoring your report and, if necessary, taking steps to improve it.
Now that we know how a low credit score can impact our daily lives, here are a few tips to improve a low credit score:
Tips to Improve a Low Credit Score
Given how much your credit score can affect all facets of your life, you might want to take proactive measures to monitor and increase your credit score. You may work your way toward good credit score even if you have made mistakes in the past by using these simple credit improvement techniques.
- Make on time payments
Try to make sure you are at least paying your minimal payments on time because your payment history is the most significant credit scoring component. Get in touch with your creditors as soon as possible if you think you will have difficulties making a payment. Your lenders will understand if you are in a genuine problem and that may give you a pass from letting the non-payment of debt hit your credit score lowering it.
- Reduce your credit utilisation rate
One of the simplest approaches to increase your credit scores would be to reduce your credit utilisation rate - the lower the better. By dividing your debt by the available credit on the card, you may determine your utilisation rate or percentage. Alternatively, if you have many cards, add up the credit limits and balances, then divide the total by the sum. Financial experts advise the credit utilisation percentage to be below 35% for building a good credit score.
- Review your credit report
Start reviewing your credit report regularly to ensure that there are no errors on your report that are contributing towards a low credit score. There is a possibility of a financial fraud or scam happening in any of your accounts, which may lower your score. Review your credit report frequently and get the rectifications done, if found any, to improve your score.
Given the significant impact credit score may have on your life, you might wish to work to improve it. Make sure you first understand all the aspects that affect your credit score. Then create a plan to work on your score to improve it. Sometimes, you may need a completely new strategy and sometimes, you may just have to fine tune a few existing strategies for an excellent credit score.
FAQs on Low Credit Score and Its Impact on Daily Life
How credit score can affect your life?
From buying a home, vehicles, gadgets, going on holidays, and even getting employed. A high credit score will ensure that all of your credit applications are approved each time you submit one. Hence, it can be said that a credit score impacts various aspects of your life.
What are the three ways a low credit score can affect a consumer?
Having a low credit score may impact a consumer in more than three (3) ways, however, listed below are three major ways a credit score will impact a daily life of a consumer:
- Getting a home loan
- Buying a car
- Getting employed in a reputed organization
What affects your credit score the most?
There are various factors that impact your credit score and not making timely repayments on your debts or entirely missing making the repayment is one of the significant factors resulting in a low credit score. Other factors are errors on your credit report, high credit utilisation ratio, and, multiple loan applications.
Is having a low credit score the end of the world?
Absolutely not. If you have a low credit score, you can consistently work on it to improve it. Start by paying off your unpaid debts to give a boost to your low credit score. Your credit score is never constant as it keeps changing as per your financial activities. Hence, having a low or bad credit score is not the end of the world. You can work towards improving it gradually.