Guest post by Jane Brown
When you’re young, poor credit seems like the least of your worries. All around you, people give bad financial advice like deferring your student loans for as long as possible, or saving short term money paying minimum balances. Bad advice isn’t detrimental to you long term, if you learn from your mistakes, but don’t take the chance when it comes to credit. Credit is difficult and costly to rebuild. Here’s the “scared straight” version of poor credit.
Plain and simple, this stuff is bad for you.
Let’s say that you’ve been saving for two years to get a new car. If you’re a skilled negotiator, you’ve talked the dealer down well below sticker price. There is just one small problem. Your poor credit will drive the cost of that car to double the sticker price when you finance the vehicle. You could pay in cash, and get a better deal, but your poor credit would remain a problem for you without a loan to bolster your profile. According to Lexington Law, a credit score of less than 560 is generally considered to be a bad credit score and someone with this score could pay considerably more than someone with excellent credit. One way to get out of this situation is to eat the costs short term and refinance your loan to a lower rate when you’ve developed an excellent payment history.
Simply put, poor credit excludes you from the best possible deals in auto financing. You are limited to lenders who will work with poor credit buyers, and you may need another person to accept responsibility for your loan as a cosigner.
When you get married, you’re going to want a home. The good news for home owners is that property values have already bottomed out and are slowly increasing month over month. The bad news for you is that interest rates are getting higher, and values aren’t dropping lower. That makes purchasing a home a very risky investment for someone who has just transitioned from a paycheck to paycheck lifestyle.
Some of the same concepts apply to home financing as in auto, such as cosigners and limited lenders to work with, but you may find yourself easily excluded from a home loan entirely. Especially if you are not a first time home buyer.
Higher interest rates apply to loans, credit cards, and business loans too. Your poor credit will increase the amount you pay across the board. Forget department store credit cards promising substantial savings on your purchases, forget cash back rewards and 0% balance transfer cards. If you require any kind of financing for your business, expect to put something up for collateral in order to complete the transaction if you can’t find a cosigner.
Some banks and other positions that deal with customer financials will run a credit check on you. They are looking for specific items, like bankruptcies or evictions, but they will flag all delinquencies. Whatever your resume qualifications, your debt may set you behind a candidate with a better payment history. Some states do give you the right to consent to background checks, and you always have the option to decline and politely excuse yourself from the opportunity. Still, poor credit is an obstacle you don’t need in an already competitive job market.
Long Term Effects
Poor credit isn’t just hitting you in the short term. If you ignore poor credit, you’re paying for the rest of your life. Every loan you get will be well above market value. That’s if you can get a loan at all. It’s easy to dismiss the importance of credit when you’re not budgeting for it. Pay above your minimum balance, make your payments early and manage your money. It’s not easy to bounce back from poor credit. All the more reason to avoid it in the first place.
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