Your credit score is a numerical representation of your creditworthiness and it tells lenders how good you are at repaying debts and effectively utilizing your available credit. There are several credit scoring models in use today, but the most common, the one most people are familiar with, is the FICO, created by the formerly named Fair, Isaac and Company in 1956. The vast majority of lenders use that score when making their credit approval (or denial) decisions.
A low credit rating or bad credit scores from any of the three credit bureaus – Equifax, TransUnion, and Experian – can have a negative effect on your financial life, and by extension, nearly every aspect of your life.
Having bad credit on its own does not necessarily lead to debt collection and the nonstop calls that go along with it. However, the chances are good that if you have a bad credit history, you will also have at least one debt that is past due. This will likely lead to debt collectors calling you on a regular basis in an effort to recover monies for their client.
Securing a Loan
Having a poor credit score (300 – 579) can have a direct impact on your ability to get a loan of any kind. Think specifically of car or mortgage loans. If you are attempting to purchase a car or a home, you will more than likely need to apply for a loan. There is no doubt the financial institutions will be taking a look at your credit score in order to determine how risky extending a loan will be for them.
Even if you are not denied a loan, perhaps your score is in the ‘Fair’ range, 580 – 669, and credit is extended to you, the terms of the loan (e.g. the interest rate) will not be as favorable if you had a better credit score.
There are certain jobs that will require you to have good credit. You can absolutely be denied employment because you have negative items on your credit report. This can include things like high amounts of debt, outstanding bills, or bankruptcy. Employers will do more than simply look at your credit score too, they will look at the actual report to see if there are particular entries that suggest your work performance might not be ideal.
It is true that with time and effort you can recover from having a bad credit score. That being said, there are quite a few aspects of your life that can and will suffer from managing your finances poorly and maintaining a low credit score. U.S. News & World Report’s credit survey can help improve financial literacy among consumers with bad credit. The survey discusses actions to take before you apply for credit, choosing the best credit card if you have bad credit, which credit cards to avoid, and using your credit card to rebuild credit.