Your credit is an important factor that lenders use to determine your creditworthiness. With bad credit, you may not qualify for as many financial opportunities, loans, or lines of credit as you would with good credit.
Bad credit can hold you back from achieving your financial goals or needs because creditors and lenders may see you as risky. You may not be eligible for certain transactions or you may be offered loan terms that are unfavorable if you do qualify.
Since your credit is a vital component to financial success in the future, it’s important to focus on repairing your credit in the right way if it needs improvement. Review important reasons you should repair your bad credit so you’re motivated to make changes to your habits that will increase your score.
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1. Save Money on Interest
When you have a low credit score, lenders look at you as a bigger financial risk. If you’re eligible for a loan, line of credit, or credit card with one of these lenders, they’re likely to charge you a high interest rate. Over the loan term, you’ll pay more with a higher interest rate than you would if you qualified for better loan terms. With a higher credit score, you’ll qualify for a better interest rate, saving you money throughout the life of the loan.
2. Get Lower Insurance Rates
Auto and homeowner’s insurance companies may pull your credit report and use your history and score to determine your insurance rate. If you have a bad credit score, these companies may not trust that you’ll pay your premium on time or take other financially responsible actions. With a good credit score, insurance companies are more likely to offer you better rates, which contributes to overall savings on your insurance premiums.
3. Stop Paying Security Deposits
When you have poor credit, it’s more likely that you’ll be charged higher security deposits when you request certain services, such as service from a utility company or phone company. These companies want to ensure they collect a big deposit from you before providing service because they assume it’s more likely you’ll default on your payments since you have bad credit.
Making these monthly payments on time is the best way to get your deposit back from the company. Taking the steps necessary to improve your credit will ensure you aren’t charged these hefty deposits to begin service in the future.
4. Buy a House or Car
With poor credit history, it’s hard to qualify for a mortgage or car loan. If you want to make one of these big purchases but need financing, a bad credit score can make it impossible to qualify for a loan.
Even if you qualify for a home loan with bad credit, a lender is likely to offer you unfavorable terms, including a high interest rate and low loan amount. You may also be responsible for a large down payment if your credit history doesn’t prove you’re a trustworthy borrower.
When you achieve a good credit score, lenders find you a more attractive borrower. You’ll have more bargaining power and will be offered better loan terms for your big purchase.
5. Stop Using Cash
With bad credit, it can be impossible to qualify for a credit card. If you do qualify for a card but display irresponsible financial behaviors related to card use, you may not be able to keep your card for long. Without credit card access, you’ll need to carry cash or a debit card directly linked to your checking account to use for everyday purchases.
Unless you carry a large amount of cash, this can make it frustrating and inconvenient to make large purchases. You may also be disqualified from other purchases that require a card, such as reserving a hotel room or renting a car.
6. Get a Higher Credit Limit
If you qualify for a credit card with a low credit score, the credit limit associated with the card is likely to be low or you may only be eligible for a secured card. You can’t negotiate a higher credit limit with a bad credit score since you’re not yet seen as a trustworthy borrower to the credit card company. However, with a good credit score, you’re likely to qualify for a higher limit and better credit card terms.
7. Stop Needing Cosigners
If you have no or poor credit, you may need to enlist the help of a cosigner to qualify for certain financial transactions, such as applying for a loan or renting a home. Be sure the cosigner knows the drawbacks of signing into this agreement. If you stop making payments as agreed upon in the loan terms, the cosigner is financially responsible.
While a cosigner will help you engage in these activities, it’s only a short-term solution. Asking a friend or family member to be a cosigner may also put a strain on your relationship, especially if you aren’t financially responsible.
8. Stop Debt Collectors
If you’re dealing with a low credit score and haven’t paid your debts, you may have already been contacted by debt collectors. Some debt collection agencies can get aggressive and begin to harass you about paying off your debt.
By enlisting the help of a professional credit repair company, you can get assistance paying off the debts you owe so these debt collectors will stop contacting you. With debt paid off, your credit score will also increase over time.
9. Strengthen Your Relationship
If you’re the only spouse with bad credit in the relationship, it may make you feel inadequate. When you repair your bad credit, it takes some of the financial burden and strain off your spouse and allows you to show that you’re responsible.
While you may have made poor financial decisions in the past that contributed to your bad credit history, it’s never too late to change these habits and improve your score. By making smart financial decisions, you can increase your score and make your partner proud.
10. Feel Better About Your Finances
With bad credit, you may feel stressed and anxious about your financial situation. You may also feel disappointed if you can’t pursue important life goals or financial transactions, such as buying a house or applying for a credit card.
Taking the time to repair your credit relieves you of this burden and worry. When you increase your credit score, you can achieve financial independence and freedom that allows you to feel secure in your financial plans and excited to pursue future goals.
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