The Side Effects of Bad Credit

Bad credit is not always something we give much thought to. It normally doesn’t raise its ugly head until you need to borrow money. Because of this, people don’t fear debt in quite the same way as they once did. Credit is easy to come by and we have slowly become indoctrinated into a “buy now, pay later” culture. If money is tight and we miss a payment on our credit card or loan, who cares?

Unfortunately, a bad credit record has a tendency to spread its tentacles far and wide. If you have a history of payment defaults, it will affect your financial life in a number of areas and not just the obvious ones. Here are the main side effects of bad credit.

No Cheap Credit

A bad credit rating doesn’t mean you won’t qualify for further credit, but it does seriously limit your choices. People with an excellent credit rating have their pick of credit cards, personal loans, and store cards. Lenders are beating a pathway to their door and they can take advantage of the lowest, most competitive deals.

If your credit rating is poor, most regular lenders won’t touch you, as you are classed as “high risk”. You can still take out loans, but you will have to pay a higher rate of interest. For example, if you need a new car but your credit rating is rock bottom, you can buy a car with bad credit, but only via a specialist lender.

Landlords Dislike Bad Credit

Getting a mortgage will be extremely difficult if you have bad credit, so you may have no choice but to live in the private rental sector. Unfortunately, most landlords don’t like bad credit reports either, as it makes you a high-risk tenant. Landlords prefer it when the rent is paid on time, so if they suspect you might default on the rent, they won’t want to offer you a tenancy.

Since reputable landlords usually check the credit rating of prospective tenants, it could make it hard to find decent rental accommodation. You may have no choice but to rent from a disreputable landlord who doesn’t care too much because their accommodation is sub-standard and non-compliant.

Starting a Business? No chance!

There may come a time when you decide to spread your entrepreneurial wings and start a business. Unfortunately, you will probably need to borrow some capital to get the ball rolling. Once again, with a bad credit history you are a high-risk borrower, so don’t expect many lenders to offer you a business loan. It will also be difficult to persuade suppliers to give you credit, which could seriously hamper your business’s cash flow.

A bad credit rating will linger for many years if you don’t take action to build it back up again. You can fix the damage caused by missed payments, loan defaults, and even bankruptcy, but it won’t happen overnight. The best solution is to avoid getting into financial difficulties in the first place.

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