How Big Loans Affect Your Credit Score
There’s no science to it, loans affect your credit score either positively or negatively. If you make on-time payments, you’ll build strong credit. However, if you miss any, your score will be damaged.
Currently, we’re living in a financial-economic crisis due to COVID-19. In the US, millions of people are unemployed and we don’t know when the pandemic will end, since we rely on scientific advancements. For this reason, many citizens are finding innovative solutions to prevent bad credit or even lose their home,
Let’s learn how loans affect your credit, especially big ones, and how you can avoid a negative score when facing financial hardship.
What’s a Loan?
A loan is created when one person (the lender) gives to another person (the borrower) money. Typically, the lender is a financial institution that has the necessary funds to provide the cash. Besides, when you agree to a loan, e.g, a mortgage or student loan, you agree to repay within a certain amount of time.
This time is stipulated in the loan agreement and you’ll have a due date assigned. Loans are related to credit because if you have good credit, lenders will trust that you’ll repay the money you borrowed. On the other hand, bad credit implies that you don’t care about your financial obligations, therefore, you aren’t trustworthy.
What’s a Credit Score?
A credit score is a three-digit number that lenders use to determine whether you’re approved for any line of credit or not. Moreover, it helps them calculate the interest rate you are charged.
In summary, it’s a picture of how risky it’s to lend you money, at a given point in time. Since your credit is based on how good you’ve handled previous debt obligations. Therefore, make payments on time and you’ll get a good score.
How Big Loans Impact Your Credit
Just applying for a loan can lower your credit score, especially if they’re big ones. This happens because 10% of your score is calculated from the number of credit applications you make. When a business or financial institution reviews your credit history, an inquiry is placed in your credit report. So, several inquiries could mean that you’re desperate for money.
How Missed Payments Impact Your Credit
Sometimes, we’re experiencing financial hardship and we’re unable to make payments on time. In this case, the first step is to contact your lender and let them know your situation. Perhaps, they’re open to re-negotiate the interest rate or the due dates.
However, many financial institutions required you to always pay on time, no matter the reason. As a result, your credit will suffer. You’ll have a hard time getting new loans since late or missed payments drop your score dramatically.
The Consequences
Your credit score is your financial ID. Therefore, if you have a bad credit history, your life can be hard. Let’s learn some of the consequences you could experience.
Higher Rates & More Restrictive Terms
Having a low credit indicates that you’re a risky borrower. So, lenders compensate the risk by charging you a higher interest rate. You’ll pay more in interest over time than you would if you had good credit.
Future Loans May Not Be Approved
If your credit score is too low, lenders won’t approve your credit. For this reason, it’s so important to have a back-up plan when resources are scarce since in the future you could use an emergency loan.
Getting Denied For Employment
Nowadays, companies also review people’s credit reports to make sure they’re hiring a responsible and trustworthy person. If you’re applying to a management position, especially in the finance industry, a business can turn you down because of bad credit.
Keep in mind that it’s the credit report, not the credit score.
Avoid Bad Credit & Big Loans
Don’t worry if you feel identified with this situation, there’s a solution to everything. Currently, US citizens are struggling with their loan payments and as a solution, many of them have decided to sell their home. Yes, their home!
Think about it, your house is your biggest asset, therefore a lot of money is guaranteed. With this money, you could avoid bad credit by paying your loans on time and invest in a smaller house, suitable for your needs. Remember that a poor credit score affects your loved ones’ stability, as well.
If you’re thinking that selling a property takes a lot of time, we have the ideal solution for you; get in touch with Colorado Cash for Keys. We buy houses in Colorado Springs and our clients are our number one priority. Besides, we make all-cash offers and give you the money in just seven days after closing.