An Overview of Bad Credit

Thousands of people have credit problems because they cannot afford to pay off their debts. Some people cannot even afford to make the minimum monthly payments to their lenders. This causes the borrowers to end up owing more money because of all the interest charges and penalty fees that get added to the principal balance. What does bad credit affect? The simple and most straight forward answer is EVERYTHING. Having bad credit affects your entire life.

Did you know that over 50% of Americans have less than $1,000 saved? The reason is due to all the money they owe creditors. No one can save money under these conditions. Interest rates have skyrocketed on loans, and it seems like creditors can charge whatever they want now.

The sad thing is that many people don’t understand how much their outstanding debt affects their credit rating. They usually figure the debt will get paid after their financial circumstances change for the better. But the reality is that bad credit can prevent you from improving your life and getting out of the hole you’re in.

What does bad credit affect featured image

Think about this as an example. Let’s say you have bad credit and cannot afford to purchase a car to get to work. How will you ever get to work and fulfill your daily responsibilities if you don’t have a car to drive around? It’s not like you can take the bus to go everywhere. And even if you could, buses cost money too.

The best solution is to repair your credit as early as possible. It might force you to take out a car loan with a much higher interest rate and higher monthly payments. Auto lenders will judge your car loan terms based on your credit score and overall credit history.

If you already have a good credit score, you can expect a low-interest rate and a longer-term limit, which means you’ll have low monthly payments. But if you have a bad credit score, you’ll have a higher interest rate and a shorter-term limit, which means your monthly payments will be higher.

What Does Bad Credit Affect | The Car Loan Scenario

car loan scenario

Suppose you have good credit and get approved for a $15,000 car loan at a 5% interest rate for 72 months. Your monthly payments will be approximately $242. At the end of the 72 months, you would have paid $17,424 in total. That is an extra $2,424 in interest payments.

Now let’s suppose you have bad credit and want to purchase the same $15,000 car. Well, the auto lender might approve your loan, but with an interest rate of 15% for 60 months. It would make your monthly payments approximately $357. At the end of the 72 months, you would have paid $21,420 in total. That is an extra $6,420 in interest payments.

Subtract $2,424 from $6,420, and you pay $3,996 in additional interest costs if you have bad credit. It is merely one example of why people with bad credit have more debt. Even if you make all your monthly payments on time, it doesn’t matter. The terms of the loan are set in stone until you make all the payments.

What Can You As A Consumer Do About It?

High-interest rates make it so difficult for people to repair their credit. It is like a never-ending sea of debt that you cannot control. You could make your minimum monthly payment and still end up paying significantly more than you originally owed. And by the time the payment term on one loan is finished, you might have taken out another loan somewhere else that needs to be satisfied. The chain of debt lasts forever.

It is no wonder why so many American families live paycheck to paycheck. The average American family cannot even afford a $500 emergency expense. What does that tell you about how bad credit ruins people’s lives? One emergency expense could become a long-lasting debt for many years to come.

If you take out a personal loan to cover the emergency expense, you’ll have to pay more money in interest. It would be so much better if you had savings because you could use that to pay off the emergency expense without any interest being owed. But if you have no savings and bad credit, you’re in a terrible financial situation.

Don’t Get Trapped in the Bad Credit Bubble

Trapped in the bad credit bubble

Are you caught in the bad credit bubble and forgot how you even got there in the first place? It can feel like a never-ending cycle of moving forward and making payments on your debts while remaining in the same place financially.

First, do not panic because many people get trapped in the same type of bubble. The American financial system is designed to keep people in the bubble without any easy way out.

You might have had outstanding credit for most of your life. Unfortunately, it only takes one bad situation for your excellent credit history to get ruined. A lost job or one emergency expense could be enough to send you into financial hardship. The experience will seem surreal because everything that was once good is now bad.

If you want to know another sad fact, most people stay in debt forever for one reason or another. Some of them cannot escape poverty and simply end up owing too many different creditors. What’s worse is that predatory lenders seek financially desperate people and offer them high-interest loans, which only put them in deeper debt.

If people are desperate enough for money, they will sign up for those high-interest loans. Life never seems to slow down, even when you slow down. The downward trend usually begins after one late payment or one emergency expense. Your credit immediately becomes jeopardized, and the stress builds quickly.

What Does Bad Credit Affect In Life

As the bad credit bubble grows more prominent, your loan and credit card opportunities diminish. If you have any current credit card accounts, your credit limits will be set to a lower amount. The lower your credit score, the lower your credit card limits.

You might think a lower credit limit will prevent you from overspending on a credit card, but that won’t necessarily be the case. There is something called an overdraft, which is when you spend more money than your credit limit allows. If you have an overdraft, you’re charged expensive overdraft fees. Desperate people with low credit limits are more likely to overdraft because they need money.

If you must contend with overdraft fees on top of the interest charges and loan debts, it’ll continue to grow your lousy credit bubble. Your credit score will then decrease as you struggle to make the monthly payments on all your credit accounts. If any of your loans have variable interest rates, you can be sure the creditors will increase them as a penalty for late payment.

Check the terms of your loan agreement. Sometimes the creditors are not allowed to increase the interest rates, especially if it’s a fixed interest rate. But there may be other terms and conditions, which include late fees and adverse credit reporting. With each late payment that you make, it means one more negative mark on your credit report. Each negative mark will decrease your credit score quickly.

People don’t typically find out how bad their credit is until they need it the most. That is why they’re so susceptible to high-interest loans during times of crises. Just the fact that you’re educating yourself on the whole credit system means you’ll be vigilant about loan offerings if a crisis strikes your life

But what if you don’t have a choice but to take these loans? Many people live paycheck-to-paycheck and feel pressure to take high-interest loans to pay their bills during hard times. If you can turn things around for yourself now, then you can prevent yourself from getting to this point in your life.

If you want to know another sad fact, most people stay in debt forever for one reason or another. Some of them cannot escape poverty and simply end up owing too many different creditors. What’s worse is that predatory lenders seek financially desperate people and offer them high-interest loans, which only put them in deeper debt.

The Value of a Bad Credit Score

Credit bureaus are businesses that need to make a profit. Their business model is to gather consumer credit data and then sell it to creditors as credit reports and leads. Creditors use this information to pressure consumers to apply for a new loan or increase the credit limit on their existing loan or credit card.

Have you ever received letters in the mail from lenders like Chase, where they try to convince you to sign up for a new credit card? Why do you think they keep sending you these letters? It is because they bought your consumer credit information from the primary credit bureaus and see that you have good credit (at least a score of 550).

The credit bureaus profit from selling this information to companies like Chase. These lenders will then turn around and try to persuade you to take out a new credit card that you don’t necessarily need or want. But what may surprise you is that lenders pay more money to credit bureaus for consumers’ credit information with subprime credit.

Subprime credit is a very poor credit score between a 300 and 579 credit score. When consumers have credit scores within this range, they are typically more than 30 days late on their loan or credit card payments. Lenders and creditors are willing to pay a lot of money for lists of consumers with subprime credit because they are the riskiest borrowers.

There are two possible reasons why a lender or creditor might have an interest in knowing which consumers are risky. One reason is they could flag these consumers immediately if one ever attempts to apply for a loan.

Debt Consolidation Companies

If the lender is a subprime credit card company or debt consolidation company, they might want to find people under financial strain and offer their services to them.

For instance, a debt consolidation company will issue a loan to consumers who pay off all their outstanding credit accounts. That means the consumer only has to make one monthly payment to one creditor instead of multiple payments to multiple creditors.

If a debt consolidation company can find which consumers have multiple outstanding credit accounts, it could mean a lot of business for that company.

Creditors pay for lists of consumers with late credit card payments, high balances on credit cards, pre-foreclosures, foreclosures, bankruptcies, collections, late mortgage payments, and so on. Each of these situations creates lousy credit, which allows certain lenders to offer their debt relief services.

It’s Always About Making a Profit

Lenders make more money by offering loan services to financially strapped people because they’ll end up paying more interest on their debt consolidation loans, bankruptcy loans, or whatever other debt relief loans they get offered. Why would a lender waste their time offering loans to people with excellent credit?

Those people usually pay off their loans early, which means they don’t pay much interest to the lenders. The lenders can only make money if borrowers pay more money in interest. So, it makes sense for the lenders to seek out people with bad credit because they’ll stay obligated to a loan for a lot longer.

As for the credit bureaus, they’re making even more money by selling this “bad credit” consumer information to all these companies. It also explains why credit bureaus don’t care so much about accurate credit reports.

The only reason they allow consumers to dispute information in their credit reports is that they’re legally required to offer that option. Most consumers do not even do that because they don’t check their credit reports too often.

The moral of the story here is that credit bureaus do not care about consumers. They only care about making a profit with the companies willing to purchase the consumer information they’ve collected. It is up to you as a consumer to ensure your credit profile is accurate and in good standing.

So, to answer your question — What does bad credit affect? — Your overall quality of life.

If free no upfront fee credit repair is a service you’re looking for you should become a client so we can get started on your disputes. We have a simple pay per deletion payment structure for you to learn more about our pricing.

No Upfront Fee Credit Repair Pay Per Deletion

Don’t forget, credit repair requires effort from both of us. We can work to remove negative items from your credit report, but we can’t add positive accounts. However, I can tell you how to do just that. Simply visit this page to find out just how easy and inexpensive it is to add positive accounts to your credit reports.

Thanks for reading and please leave your feedback below! All comments are welcomed. Happy building!

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