- How Much Money Is Needed To Invest In Rental Property?
- Should A Real Estate Investor Get An Agent’s License?
- 5 Big Factors That Affect The Costs Of Renovating Your Home
- SIBOR Hike – What You Can Do With Your Current Loan
- 6 Basic Don’ts Of Real Estate Negotiation Tactics
- Will New Condo Relaunches Trigger The Great Property Sale We Have All Been Waiting For?
- 10 Proximity Amenities That Add Value To Real Estate
- How To Get Personal Loans More Easily With Good Credit
5 Costs Of Destroying Your Own Credit
When people realize that they have bad credit, many feel that they have been victimized.
It makes sense that they have been the victims of late payments, loan defaults, unpaid credit card bills, and debt settlements.
Just that they are the ones who had victimized themselves.
The truth is that nobody can force anyone to borrow money. And when one willingly goes to a lender, he has to agree with the repayment terms of the facility before accepting it.
So if you have bad credit, it is your own fault.
I’m not a champion of banks that are too big to fail. But You made a promise to repay and you did not. Now your credit is destroyed. What else do you expect?
It can be a surprise to many readers that a huge portion of people have no idea of the credit rating system.
This could be a reason why many decent people fall into the bad credit trap without knowing it’s consequences.
Just ask someone whose life is badly affect by their adverse credit and the answer you will probably get is that they wouldn’t have allowed their credit to implode should they have known.
In case you are one of those who is still uncertain of the consequences of bad credit, hopefully the following costs of bad credit will wake you up.
And for your future’s sake, maybe you will avoid tarnishing your own credit record if you are on the verge of defaulting on an existing loan.
Here are some of the costs of bad credit.
1) Penalty fees
The most immediate costs that you will incur concerns penalty fees for late payments, bounced checks, default rates, etc.
For some funny reason, these fees tend to be higher for secured credit facilities.
Probably because lenders already make a lower margin on secured loans and were willing to accept a lower profit for that security.
And when you have the audacity to default, they will want to make an example out of you as a warning to others to take their loan obligations seriously.
If you think these fees are pretty taxing for the average person. I assure you that you have seen nothing yet.
2) Higher interest rates
The lower your credit score, the more risky a borrower you are.
To compensate for the increased risk, you will be charged higher interest rates for the facilities you want to obtain.
This could be the reason why you are unable to get the teaser mortgage rates that your friend has been harping on about over social media.
The world isn’t fair.
This is as real as it can get in the world of lending and borrowing.
Bad behavior is never tolerated by lenders. Especially when you consider that they generate their income from borrowers who follow their rules.
3) Employment opportunities
Perhaps disturbingly, more and more employers are looking at credit histories of job applicants.
Wouldn’t it be a deal breaker when you the job of your dreams become available and you lost out due to a bad credit score?
While these types of action by employers are disgusting, it is a fair way for them to judge your character, especially if you job involves handling money and accounts.
It can sound absurd. But how you manage your money is a reflection of how you handle other areas in your life.
And if you are drowning in debt, you can’t fault employers for being wary of your integrity on the job.
4) Higher insurance premium
Insurers have determined via thorough research that there is a clear relation between risk and credit.
The lower your credit score is, the risker you are to insure. Go figure that out.
We can argue about this all day long. But the fact is what it is.
You might even consider yourself lucky if there is an insurer is willing to take a bet on you.
As a lot of us can agree, insurers are one of the most meticulous when it comes to details. And they would use any reason (excuse) they can find to justify a higher premium.
5) Opportunity costs
Imagine a 100% safe investment comes along promising 50% returns. You will need the funds to invest in it. You then walk into the bank and gets denied a loan. Say goodbye to your opportunity for 50% yield.
A very common situation where people get screw by their own credit is when they buy a house.
You spent a few months looking for the perfect house and now that you find one and a good price, you realize that you are unable to get the mortgage to complete the transaction.
The worst part is that you had already put up cash upfront.
Whether you are investing in turnkey properties or any other investment that has an attractive yield, having no access to funding means that you will never get to touch it.
Watch your credit
It almost sounds like a broken record to say that you should watch your spending and repayment habits.
Because not only will you incur immediate costs for late payments, you can potentially incur bigger costs in future as a result of your bad money management.