When Thin is Bad

Apr 26, 2017 by

thin credit fileToday I’m pleased to offer a guest post from David Chen who’s the Big Cheese over at Millennial Personal Finance. Dave’s a clever guy: he made it easy for me to accept and publish his article by writing about a topic near and dear to my heart: why it’s important to optimize your credit score. 🙂

Why Having a Thin Credit File Hurts Your Finances

When it comes to your credit score, it is really important to keep a close watch on it and do your best to keep it healthy. A healthy credit score can really help you to get a lot further in the financial world. On the other hand, a thin credit file can actually put a pretty big hindrance on your finances. Before you max out your credit cards and start to get behind on payments, make sure that you are aware of the implications that this can have on you, and especially on your financial future.

There May Be Issues Getting Approval for Anything Financial

Any time you apply for a new loan or credit card, the lender will do a credit check to ensure your creditworthiness before they will extend you the credit. If you have a low credit score, they consider you a high risk borrower. Many lenders even have a minimum credit score requirement for approval for their loans or credit cards. If you don’t meet these qualifications based on your credit file, chances are you will see the typical “We will notify you by mail…” response. We all know what that means. Application denied!

If you have poor credit, your child (or future child) could even be affected too. Parents often can help their children get lower interest rates on student loans. If you have poor credit, however, you won’t be approved as a cosigner, and your child will have to deal with their student loans alone.

You May Have Higher Interest Rates than People with a Better Credit Score

If you do happen to find a credit card company or lender that will approve your application even with poor credit, then chances are you will face a higher interest rate than someone that has a good credit history. The problem here is that because a low credit score usually means a higher risk, they can charge you more in interest and fees. This is also due to the fact that many lenders don’t take that risk at all, so the market for loans and credit cards for people with poor credit is usually pretty limited.

It Can Keep You from Renting or Buying a Home

These days, everyone does a credit check for just about everything. People think that working on their credit is important when it comes to buying a home, but it is really just as important for those that rent. Everyone knows that you need a pretty good credit score to be able to buy a house. Did you know that many landlords also require credit checks for renting as well? The truth is, landlords take a big risk when they rent out their property. They need to see your payment history to ensure that you will make your monthly rent payments on time. If you have poor payment history reflected on your credit file, you may find it hard to get approved for a rental property, much less a mortgage.

You May Face Higher Rates for Insurance Premiums

In general, health insurance is required. States also require drivers to have auto insurance. These are just a few of the types of insurance that you are supposed to have all the time. This doesn’t even mention other types of insurance that may be beneficial, such as life insurance, renters or homeowners insurance, etc. Did you know that when you request a quote for any type of insurance that they actually run a credit check? Your credit can directly affect your insurance premiums. This means that someone with good credit can have the exact same insurance package as someone with poor credit and the person with poor credit will pay more for it.

Some Hiring Employers Use Credit Checks

Having a good job is one of the best ways to ensure that you are financially secure. Many employers out there these days require credit checks before they will extend an opportunity for employment. This means that having a bad credit score can actually hold you back from being able to further yourself financially in the future. Some people want to know why credit matters so much when it comes to a job. It seems many companies feel that people that have issues managing their own money may not be the best fit for the job. While there are some people pushing for credit to not be taken into consideration, as of now it is an acceptable reason to be denied a job.

As you can see, your credit can really have an impact on your finances. Strive to keep your credit in tip top shape, so that you don’t have to spend years playing catch up down the road.

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