Docu – 10 things millionaires understand and poor people don't know (october 2022)
Table of contents:
Your credit score is a three-digit number that measures your responsibility as a borrower and overall financial stability (see what is a good credit score? ).
Since it is based on data from their credit reports (typically from the three major bureaus: experian, equifax and transunion), this can be a good indicator of how likely they are to get favorable interest rates and terms on their future loans. Credit lines.
People with bad credit tend to have several negative items on their credit report, such as late payments, defaults, foreclosures and – perhaps worst of all – bankruptcies.
If you have bad credit and become part of the "subprime" level of consumers, you will find that these five things in life become much more difficult.
1. Own a car
As the economy continues to recover from the mid-millennium recession, car dealerships and banks have offered more subprime auto loans to people with bad credit, making it relatively easy today to finance a car with bad credit.
But if you have bad credit, do not expect these loans to come cheaply. They could very easily find that they are paying a much higher interest rate compared to someone with good credit.
Interest rates are important here because if you didn't invest that much money when you bought the car, you could end up paying more than the car is really worth.
Even if you opt for a lower interest rate over a longer period of time (some subprime auto loans are for seven years or more), you will likely pay thousands of dollars over time purely in interest.
2. Getting a job
There's a common myth that employers check applicants' credit scores – they don't. However, it is perfectly normal for an employer to pull an applicant's credit report during their evaluation (people often get the two confused – see which is more important to lenders, my credit score or my credit report? )
What's on your credit report can be just as important as what's on your resume. HR managers need to know if they are reliable and responsible.
If they see that they are having difficulty making payments on credit cards and student loans or have a history of bankruptcy, they will begin to question whether they can be a reliable member of the organization.
3. Owning a home
Buying a house is the biggest financial move many consumers will ever make. If you are not one of the wealthiest americans, you will probably have to take out a 30-year mortgage to pay for the house.
Many real estate brokers and banks are still recovering from the shock of the subprime mortgage crisis, so mortgages are still hard to find for people with bad credit (although the situation has eased somewhat recently).
If you are lucky enough to be able to buy a house despite bad credit, you will probably have to increase the size of your down payment and pay a high premium on your interest rates to make the underwriter feel comfortable with you. ..
The combination of a higher-than-average down payment and higher interest rates could put homeownership out of reach for someone with bad credit.
If you have bad credit and want to buy a home, read top mortgage sources if you have a bad credit score .
4. Starting a business
Even if you have excellent credit, starting and running a business is still a risky and difficult undertaking. In fact, about 50% of all small businesses close after the first four years.
Adding bad credit to the mix makes things more difficult, especially when you consider the fact that one in three small businesses uses credit cards to finance their operations.
If they have to take out loans or open credit cards to get their small business up and running, they will immediately be at a severe disadvantage due to higher interest rates.
All that money going toward higher interest payments will cut into their profit margins and reduce their chances of success.
For more information, read 8 tips for starting your own business .
5. Maintaining a healthy relationship
It's not uncommon for couples to argue about finances. Whether it's a frivolous purchase, a lack of budget, or excessive debt, disputes over money management put a significant strain on any relationship.
If you have bad credit, you probably know it and feel some kind of shame, stigma or fear associated with it. These negative feelings can damage the intimacy you share with your loved ones.
It's a good idea to discuss household finances regularly with your significant other. In fact, some people say they find a good credit score "sexy".
The bottom line
Bad credit doesn't make any task in life easier. Higher interest rates and less favorable credit conditions could make you pay for your financial mistakes for years to come.
Make your monthly payments on time, avoid excessive debt, and live within your means to turn your bad credit into good credit. For more information, see 10 ways to improve your credit report .