We’ve said it before and we’ll say it again, your credit is the backbone of your finances. When your credit is strong and healthy so are all other aspects of your financial life. Furthermore, when your financial life is on point the rest of your life often follows suit. So, it should come as no surprise to you that bad credit can and will affect your daily life.
Depending on how you like to live your life, money is frequently the thing around which our lives revolve. Obviously, it’s how we pay for everything we need (or don’t need). So, what happens when your access is restricted to the money we need? Your life is greatly affected, both in the present and potentially far into the future.
Housing
If you’re an adult living in Canada, chances are you need somewhere to call home, whether that’s an apartment or a house of your own, you need a roof and four walls. To get this, someone (either a landlord or a lender) needs to put their trust in you. Trust that you’ll keep your end of the bargain and pay for that roof and those four walls.
So, when your credit score is less than great, how does it affect…
A Mortgage Application
Bad credit will, without a doubt, prevent you from getting approved for the affordable mortgage you want (click here for more information about applying for a bad credit mortgage). Because mortgages are typically the largest loan a consumer will ever take on, they require a lot of risk assessment. Do you make enough money to cover the payments plus any other financial commitments you might have? Do you have a history of responsible credit usage? Do you carry a significant amount of debt month to month? Has your irresponsible credit usage resulted in a poor credit score? These are all things a mortgage lender will want to know.
For most Canadians, owning a home is one of their life goals and a way in which they invest in their futures. Not being able to get approved for a mortgage until later in life means they’ll be in debt further into their lives and have less time to devote to saving for retirement.
An Apartment Application
Because rent is almost always a set monthly price for an agreed upon time (typically one year), bad credit won’t affect the price of an apartment but it can affect whether you get approved to live there. Bad credit can signal to a landlord that you have trouble managing your money and might not be the best at keeping up with your financial obligations, both of which are not qualities that landlords look for in a potential tenant. For those who need to rent an apartment right away and don’t have time to wait to improve their credit, you may want to consider asking your potential landlord if having a cosigner is an option.
For more information on why landlord check credit, read this article.
Employment
What many Canadians who are a part of the work force don’t realize is that your credit score can affect whether you’re hired for a job you want. At this point, we think it’s important to note that not all employers will check your credit before they hire you and those who do, must ask for your permission.
You might be wondering why a potential employer would want or need to check your credit and how having bad credit would affect your ability to be a good employee. The fact is, all employers check credit for their own specific reasons. Reasons that they don’t need to justify for anyone, except maybe a potential employee who probably won’t get hired if they don’t consent to a credit check. Generally speaking, if the job you’re applying for is in the finance industry or if you’re going to be in charge of large amounts of money than you might expect your future employer to check your credit. An employer might also simply equate a healthy credit score and responsible financial practices with a general sense of trustworthiness.
For a more detailed look at the Canadian credit score, check out this infographic.
Access to New Credit and Loans
If you have bad credit, you’re not likely going to be able to access the affordable credit and loans products that you want. But, bad credit does not come with a “no credit for life” sentence, you’ll simply have fewer options. While this isn’t a worst-case scenario, being unable to access new credit and loans can stagnate some people’s lives, making it hard for them to achieve their financial goals, pay for expensive things they need, and afford to handle financial emergencies.
Being unable to get approved for a mortgage, personal loan, new credit card, or car loan can make it hard to live in an area and in a home that works best for you and your family. Pay for a medical emergency, or purchase the car you need to get to work every day or drive your children to and from school.
Looking for loans and programs to help you get out of debt? This is for you.
Interest Rates
When your credit is less than great, the interest rates you’ll be offered are typically higher than the rates offered to those who have average to good credit. A higher interest rate on a loan can increase both your monthly payments and term, meaning the burden of debt will not only be greater on a monthly basis but over time as well. A higher interest rate on a credit card will accelerate the accumulation of debt if you are unable to pay off your full balance each month.
Over time, higher interest rates make it more difficult to stay on top of your debt, will increase the length of time you’re in debt for, and therefore make it all the more difficult to focus your time and money on other financial goals, like saving for your retirement.
The Good News
You don’t have to be in this situation forever, bad credit is not a life sentence. Your credit history and credit score are completely in your hands to change and improve and therefore positively affect your financial future. Your main plan of attack should be to get your foot in the door, take out a secured credit card, get a bridge loan, apply for a personal loan or car loan that has a higher interest rate. Then use whatever product you get to responsibly, always make your payments on time, and eventually, you’ll build your credit back up to where you want it to be
