When people realize that they have bad credit, many feel that they have been victimized. It makes sense that they have been the victims of late payments, loan defaults, unpaid credit card bills, and debt settlements. Just that are the ones who had victimized themselves.
The truth is that nobody can force anyone to borrow money. And when one willingly goes to a lender, he has to agree with the repayment terms of the facility before accepting it. So if you have bad credit, it is your own fault. I’m not a champion of banks that are too big to fail. But You made a promise to repay and you did not. Now you credit is destroyed. What else do you expect?
It can be a surprise to many readers that a huge portion of people have no idea of the credit rating system. This could be a reason why many decent people fall into the bad credit trap without knowing it’s consequences. Just ask someone whose life is badly affect by their adverse credit and the answer you will probably get is that they wouldn’t have allowed their credit to implode should they have known.
In case you are one of those who is still uncertain of the consequences of bad credit, hopefully the following costs of bad credit will wake you up. And for your future’s sake, maybe you will avoid tarnishing your credit record if you are on the verge of defaulting on an existing loan.
Penalty fees
The most immediate costs that you will incur concerns penalty fees for late payments, bounced checks, default rates, etc. For some funny reason, these fees tend to be higher for secured credit facilities. Probably because lenders already make a lower margin on secured loans. And when you have the audacity to default, they will want to make an example out of you.
If you think these fees are pretty taxing for the average person. I assure you that you have seen nothing yet.
Higher interest rates
The lower your credit score, the more risky a borrower you are. To compensate for the increased risk, you will be charged higher interest rates for the facilities you want to obtain. This could be the reason why you are unable to get the teaser rates that your friend has been harping on about over social media.
The world isn’t fair. This is as real as it can get in the world of lending and borrowing.
Employment opportunities
Perhaps disturbingly, more and more employers are looking at credit histories of job applicants. Wouldn’t it be a deal breaker when you the job of your dreams become available and you lost out due to a bad credit score?
It can sound absurd. But how you manage your money is a reflection of how you handle other areas in your life. And if you are drowning in debt, you can’t fault employers for being wary of your integrity on the job. Especially when you are in a role that handles finance.
Higher insurance premium
Insurers have determined vi thorough research that there is a clear relation between risk and credit. The lower your credit score is, the risker you are to insure. Go figure that out.
We can argue about this all day long. But the fact is what it is. You might even consider yourself lucky if there is an insurer is willing to take a bet on you.
Opportunity costs
Imagine a 100% safe investment comes along promising 50% returns. You will need the funds to invest in it. You then walk into the bank and gets denied a loan. Say goodbye to your opportunity for 50% yield.
A very common situation where people get screw by their own credit is when they buy a house. You spent a few months looking for the perfect house and now that you find one and a good price, you realize that you are unable to get the mortgage to complete the transaction. The worst part is that you had already put up cash upfront.
Watch your credit
It almost sounds like a broken record to say that you should watch your spending and repayment habits. Because not only will you incur immediate costs for late payments, you can potentially incur bigger costs in future as a result of your bad money management.