How Bad Credit Hurts You

Is your credit rating in the gutter?

A credit rating is a legal track record of your financial responsibility. This record shows potential creditors if you are "creditworthy." Those in a position of lending—whether it is a loan, mortgage, or a credit card—want to know what the probability is of you paying back debt. The better your credit history, the better lenders feel about approving you for a loan.

Even those who don’t lend money may be interested in knowing how financially trustworthy you are.  Potential landlords, utility companies, or businesses that "lend" you something (such as appliances) will want to know if you’re responsible.

Having a poor credit history can seriously affect you if you need to borrow money, goods, or services. You can be denied what you need, or be charged more to get it through higher fees and increased interest rates. A poor credit score indicates to lenders that you are a high-risk borrower, and if lenders are willing to take that risk at all, they’re going to hedge their bets by charging you more for the privilege of borrowing. 

What is bad credit?

Perhaps it’s been a few months and you think your credit rating is great. You go for a loan and you can’t understand why you were denied.

Some people think that by paying the minimums on their credit card balances, even if their cards are "maxed," that they’re keeping their credit rating in good standing. A balance over 75% of the credit limit, though, is NOT keeping your credit in good standing. Also, not paying bills by their due date is another way to bring your credit rating down.

Another way to lower a credit rating is to take a cash advance from one credit card to pay down another credit card. Remember, the whole idea behind debt is to pay it off, not shift it around from one account to another.

How can a poor credit score hurt me?

When you have poor credit, it’s much harder and more expensive to obtain a mortgage, a car loan, a school loan, utilities, and a cell phone. Poor credit also hampers your ability to rent an apartment, appliances, or furniture. Purchasing large ticket items that advertise "OAC" (on approved credit) will also be more difficult with poor credit.

And remember, if you are married and your spouse has a great credit rating, that doesn’t necessarily mean that you have one too. There is no such thing as a joint credit score. If your spouse were to pass away or you were to divorce, you may have a hard time applying for new loans or re-applying for an existing mortgage (if it’s not already in your name) with poor credit.

You never know what emergencies or circumstances may happen down the road. A bad credit rating can prevent you from attending to a financial emergency. Don’t wait until it’s too late to drag your credit out of the gutter. Start now by finding out your credit rating. You can get your credit reports and scores from Canada's two major credit bureaus: TransUnion and Equifax. Once you know where you stand, you can work on building strong credit to make future borrowing easier and cheaper.

Photo courtesy of http://www.flickr.com/photos/jasonippolito/ / CC BY 2.0