Your credit score tells your capability to pay off a debt in a given time. Hence, maintaining a good credit score is essential. Typically, a credit score falls between 300 points to 900 points. If you have a higher credit score, it usually increases the chance of your loan application or credit application being approved. In summary, creditworthiness is one of the most important elements in determining whether or not an application is eligible for a new line of credit.
Your credit score also influences other aspects of your life. Hence, it’s essential to maintain a good credit score. However, there might be few activities that hamper and affect your credit score negatively. Let’s check what these activities are and how a bad credit score impacts your everyday life.
Activities that Result in Low Credit Score
Some activities in your everyday life may result in a low credit score. Let’s take a look at what these activities are:
1. Late/missed payments: Payment history plays an important role in determining your credit score. A 30-day late payment might have a significant impact on your credit score. This will be considered a payment default and may have a variety of implications.
2. Exceeding your credit card limit: When using credit cards, the general rule is to keep the utilisation ratio between 10% and 30% of the available credit limit. Your credit score will suffer if you use more than 30% of your credit limit. Exceeding the 30% limit may imply that you are excessively relying on your credit card.
3. Negative account information: Repossessions, foreclosures, charge-offs, and bankruptcy are all listed on your credit report. Any of the above-mentioned account statuses can have a long-term negative impact on your credit score.
4. Several loan applications in a short period of time: Applying for a loan with multiple lenders in a short period of time may give the impression that you are in desperate need of money. The inquiry details will be noted in your credit report when each of these lenders sends an inquiry request about you to credit rating organisations. This may lead to your application being rejected by the lender. And multiple inquiries regarding your credit score may also result in lowering your credit score.
How Low Credit Score Affects Everyday Life
A low credit score will affect your everyday life as well as your future. Below are a few ways in which a low credit score may affect you:
1. Credit card limit may get affected: If a lender notices that your credit score is steadily declining, he may lower your credit card limit. This is to keep you on track with your expenditures so that you don't end up with a large bill later. If you continue to spend without regard for the lower credit limit, your credit utilisation ratio will climb, lowering your credit score even further.
2. Car/House purchase: When applying for a car loan or home loan from a bank or financial institution, you will need a good credit score to get a good offer. A good credit score may help you acquire a large loan amount, lower interest rate, and a longer payback time. A good credit score will also help in your loan application getting approved. However, your loan application may get refused if you have a poor credit score. There’s also a chance that lenders will charge you a higher interest rate than usual and may also grant you a lower loan amount than you need.
3. Affect new business: To convert a great idea into business reality, you will need a business loan. However, you may find it difficult to secure a business loan if you have a bad credit score. Your lender may not trust you with the funds, making it difficult for you to borrow funding for your business.
4. Negative impact on relationships: Your credit score may negatively affect your relationships. Your business partners may lose faith in you and may wish to remove you from the company. If you continue to mismanage your finances, your friends may also distance themselves from you because they fear you will ask for financial assistance in the future.
5. Constant calls from lenders: Your credit score reflects whether you pay your payments on time or late. When your credit score is low, it means you've been postponing or even defaulting on payments. In this instance, lenders attempt to contact you to remind you of your obligations. Legal notices will be sent to you if you do not react to their calls.
A low credit score may affect your everyday life and also your peace of mind. Hence, always try to keep your credit score in check by making timely repayments of your loan. Getting a good credit score takes a lot of time and effort, so take extra care of that.