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Wednesday, August 1, 2012

10 Side Effects of a Low Credit Score

According to the results of the 2012 National Financial Literacy Survey, many of us could use a little more literacy when it comes to our finances. The report, released by the National Foundation for Credit Counseling (NFCC) and the Network Branded Prepaid Card Association (NBPCA), showed that 42 percent of Americans give themselves a C, D, or F when it comes to their knowledge of personal finance and these grades are in line with the rest of the survey results.

Here are a few stats that stood out to me from the survey:

39% Carry Credit Card Debt
This is roughly the same number as last year (40 percent), so at least things aren’t getting worse. But this is a precarious position to be in. If you’re one of these folks, and it’s at all possible, stop using your cards and focus on paying down the debt. I suspect, though, that some of those in this group are carrying debt because they don’t have the cash flow to pay the bills off every month.

If you must carry a balance, use the card with the lowest interest rate. And if you have excellent credit, check out zero percent APR credit cards. Do whatever you can to minimize your interest expense.

"What's the big deal with a low credit score," you might ask. Since so many businesses now judge you based on your credit score, having bad credit can make life extremely difficult from getting a job to getting a place to live. Here are some of the most common side-effects of bad credit.

1. High interest rates on your credit cards and loans Creditors and lenders see bad credit applicants as riskier than their better credit counterparts. They make you pay for this risk by giving you a higher interest rate. Over time you’ll end up paying more in interest than you would if you have better credit.

2. Credit and loan applications may not be approved Because creditors and lenders think you’re a risk, they might not want to lend to you at all. You may find that your applications are being denied because of bad credit.

3. Difficulty getting approved for an apartment Who knew that landlords checked credit before allowing you to sign a lease? It’s true. Having bad credit can leave you homeless or close to it.

4. Security deposits on utilities Utility companies – electricity, phone, and cable – check your credit as part of the application process. If you have a bad credit history, you may have to pay a security deposit to establish service in your name, even if you’ve always paid your utility bills on time.

5. You can't get a cell phone contract Yep, cell phone companies check your credit too. They contend that they’re extending a month of service to you, so they need to know how reliable your payments will be. If your credit’s bad, you may have to get a prepaid cell phone or go without one at all.

6. You might get denied for employment Certain jobs, especially those in the finance industry, require you to have a good credit history. You can actually be turned down for a job because of negative items on your credit report, especially high debt amounts, bankruptcy, or outstanding bills.

7. Higher insurance premiums Insurance companies check credit too. They say that lower credit scores are linked to higher claims filed. Because of this theory, they check your credit and charge a higher premium to those with lower credit scores, regardless of the number of claims you’ve actually filed.

8. Calls from debt collectors If you have past due bills, chances are debt collectors are calling you for them. It typically comes with the territory when you have bad credit.

9. Difficulty starting your own business Many new businesses need banks loans to help fund their startup. A bad credit history can limit the amount you’re able to borrow to start a new business, even if you have the greatest idea and the data to prove it.

10. Difficulty purchasing a car Banks check your credit before giving you a car loan. With bad credit you might get denied or you might get approved with a high interest rate. Most of those “no credit check” car lots charge extremely high interest rates that make it difficult to make your monthly car payments.

Making the decision to improve your credit score is the right decision!

Visit CreditScoreCounseling.com and apply for the Credit Score Counseling Membership which can help you raise your credit score and lower your risks.

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