Access Denied: The Barriers Associated with Having a Low Credit Score
NOTE: This is the third of a four-part series cultivated by local nonprofit, Common Wealth Charlotte, for April’s financial literacy month. This installment features insight from Andy Jenkins of CreditKarma.com on how to build good credit.
Have you ever been rejected for a financial product you needed? If so, you’re not alone.
In fact, according to industry statistics, approximately 80% of near-prime or subprime credit card applications are denied. Beyond the embarrassment of being denied a credit product, being rejected for a line of credit could mean the difference between paying for an unexpected emergency or purchasing a car so you can travel to and from work every day.
These are critical moments that can make or break a person, financially.
In general, your ability to get approved for a financial product typically starts with your credit score, which serves as a gauge for your financial standing.
What’s in a score?
For many, a credit score is a mysterious three-digit number that only matters at certain times in our lives, like purchasing a car, applying for a new apartment lease or buying a home.
A credit score is a calculation of your credit worthiness, based on factors in your credit report. The credit report itself is a collection of your personal financial information including things like current and previous addresses, current credit card and loan balances and payment history.
Consumers often stick their heads in the sand and avoid thinking about their credit score altogether. But there are downsides to not understanding and protecting your credit. Let’s discuss a few ways a bad credit score could affect you:
You may have a hard time getting approved for a loan, and it will likely cost you
Having a poor credit score can make it difficult, if not impossible, to get a loan when you need it. Even if lenders extend you a line of credit, they’ll often charge you a higher interest rate to compensate for the risk associated with a low credit score.
For loans on higher-ticket items, like cars or houses, a lender may insist on a higher down payment before making the loan. Either way, a low credit score can cost you more money over time.
You may struggle to qualify for housing
If you’re looking for a new place to live, a low credit score could jeopardize your chances of getting the house or apartment you want. According to data from Experian, a credit score of 620 is often the minimum you need to qualify for an apartment, although most landlords are looking for a credit score of 700 or above. If your credit score doesn’t meet these expectations, it could be difficult for you to secure a lease.
You might have to pay more insurance premiums
Many states in the United States allow auto and homeowners insurance companies to factor your credit into their assessment of your risk profile. That means those with lower credit scores could expect to pay higher premiums for their insurance.
You could miss out on your dream job
In many states, employers are able to leverage credit reports when making hiring decisions. Depending on the employer, a low credit score could keep you from being hired for the job you want or from receiving the promotion you deserve.
Because your credit score can impact you in so many ways, it’s important to understand what goes into it and to check your score and report often using tools such as Credit Karma.
Actions you can take to improve your score include:
- Contact credit bureaus if you see errors or accounts that aren’t yours
- Make regular on-time payments toward your outstanding bills
- Keep your credit utilization low
For More Information Through CreditKarma.com
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