How a Low Credit Score Can Affect Your Everyday Life

Your credit score is more than just a number; it’s a reflection of your financial health and trustworthiness. A low credit score can have far-reaching consequences, impacting various aspects of your daily life. Let’s explore how a low credit score can impact your daily life and what steps you can take to improve it.

Financial Transactions and Credit Accessibility

One of the most significant ways a low credit score impacts your daily life is by limiting your access to credit. When you apply for a personal loan, lenders consider your credit score to assess your creditworthiness. A low score may result in loan rejections or higher interest rates, making borrowing more expensive.

For example, imagine you need a personal loan of ₹5 lakh for a home renovation. With a low credit score, the impact might be felt in the following scenarios:

• Loan Rejection: Your application may be denied outright due to your poor credit history.
• Higher Interest Rates: Even if approved, you may be offered a higher interest rate, such as 18% instead of the standard 12%, resulting in higher EMIs and increased overall cost.

Similarly, obtaining credit cards with favourable terms becomes challenging with a low credit score. You may be approved for cards with lower credit limits, higher fees, or fewer rewards.

Housing and Rentals

A low credit score impacts your ability to secure housing. When you apply for a rental property, landlords often conduct credit checks to assess your financial reliability. A poor credit history may lead to rental application rejections or higher security deposits.

For instance, let’s say you’re looking to rent a 2BHK apartment in Mumbai. With a low credit score, you might encounter these situations:

• Application Denial: The landlord may reject your application due to concerns about your ability to pay rent on time.
• Higher Deposits: You may be required to pay a higher security deposit, such as 3-6 months’ rent, instead of the standard 1-2 months.

Furthermore, buying a home becomes more challenging with a low credit score. Mortgage lenders heavily rely on credit scores to determine loan eligibility and interest rates. A low score can result in unfavourable loan terms or even disqualify you from certain mortgage programs.

Employment Opportunities

Your credit score can also influence your employment prospects. Some employers, particularly in industries like finance or government, may check your credit history as part of the background screening process. A low credit score could impact your job candidacy.

While a low credit score alone may not disqualify you from a job, it can be a deciding factor when multiple candidates have similar qualifications. Employers may perceive a low score as an indicator of financial irresponsibility or instability.

Utility Services and Insurance Premiums

Utility companies and mobile phone providers often check credit scores when setting up new services. With a low credit score, you may be required to pay larger deposits or provide guarantees to establish these services.

For example, if you’re signing up for a new mobile phone contract, you might face the following:

• Higher Deposits: The mobile provider may demand a higher upfront deposit, such as ₹5,000, instead of the usual ₹1,000.
• Limited Plans: You may be restricted to certain plans or excluded from promotional offers available to those with good credit.

Insurance companies also use credit scores to determine premiums. A low credit score can lead to higher insurance rates, as insurers associate poor credit with a higher risk profile. This means you may end up paying more for auto, home, or life insurance policies.

Improving Your Credit Score

While a low credit score can have significant consequences, the good news is that you can take steps to improve it. Here are some key strategies to reduce the impact of low credit scores:

1. Pay Bills on Time: Consistently making timely payments is crucial for maintaining a healthy credit score. Set up automatic payments or reminders to ensure you don’t miss due dates.
2. Reduce Credit Utilisation: Keep your credit card balances low relative to your credit limits, as low balances impact your credit score positively. Aim to use no more than 30% of your available credit at any given time.
3. Monitor Your Credit Reports: Regularly review your credit reports for errors or fraudulent activities. You can access your free credit score and report through the Airtel Thanks app.
4. Limit New Credit Applications: Avoid applying for multiple credit accounts within a short period, as each application can temporarily lower your score.
5. Consider Secured Credit Options: If you’re struggling to qualify for traditional credit, explore secured options like fixed deposits or secured credit cards to help build your credit history.

Remember, improving your credit score is a gradual process that requires consistent effort and responsible financial management. By adopting good credit habits and seeking guidance from reliable sources like Airtel Finance, you can work towards a healthier credit profile and unlock better financial opportunities, such as personal loans at low interest rates.

FAQs

1. How long does it take to improve a low credit score?

   The time it takes to improve a low credit score varies depending on individual circumstances. With consistent positive credit behaviour, such as timely payments and low credit utilisation, you may start seeing improvements within 6-12 months.

2. Can I get a personal loan with a low credit score?

   While it may be more challenging to secure a personal loan with a low credit score, it’s not impossible. Some lenders specialise in loans for individuals with less-than-perfect credit. However, these loans often come with higher interest rates and less favourable terms.

3. How can I check my credit score for free?

   You can check your credit score for free through the Airtel Thanks app. The app provides you with your credit score and report, along with insights and recommendations to help you improve your credit health. Additionally, you can visit the websites of major credit bureaus like CIBIL, Experian, or Equifax to access your credit report once a year for free.

4. What is a good credit score range?

   Credit scores in India typically range from 300 to 900. A score of 750 or above is generally considered good to excellent, while a score below 600 is considered poor.

5. Can I still rent an apartment with a low credit score?

   While a low credit score can impact your daily life by making it more difficult to rent an apartment, it’s not an automatic disqualification. Some landlords may be willing to overlook a low credit score if you can provide alternative proof of financial stability, such as a steady income, a co-signer, or a larger security deposit.