It is standard practice for banks, lenders, companies, and individuals to review your credit record when applying for financing, housing, and credit services.
The information in your credit report helps these lenders validate your trustworthiness and creditworthiness for their loan product.
Understanding how your credit record affects your life is essential to understanding a poor credit record.
We cover the ultimate consequences of a low credit score in your ability to have the things you need to survive.
What Is A Poor Credit Record?
A low credit score is often a reflection of a poor credit record. It shows that you have not been paying your bills on time and will likely fail to make your bill payments.
In Canada, your credit record is maintained by Equifax and TransUnion, called credit bureau agencies.
Your lenders monthly report your debts, balances, and payment status to these credit agencies.
These monthly reports build up to form your credit record. The information in your credit record is then used to calculate your three-digit credit score.
Poor credit records include excessive hard credit inquiries, high debt balances, many missed payments, outstanding payments, collections, judgements, consumer proposals and bankruptcies.
Hard Credit Inquiry Vs Soft Credit Inquiry
Lenders can access your credit record by making a hard or a soft credit inquiry.
Hard inquiries occur when a lender, such as your bank or a credit card issuer, checks your credit record before making a lending decision.
Hard inquiries are also known as “hard hits,” “hard pulls,” or “hard credit checks.”
You should limit the hard inquiries you authorize on your credit record because it could lower your credit score.
Soft Inquiries are surface-level checks used to assess your creditworthiness.
This form of credit hit does not affect your credit score.
Soft inquiries, also known as “soft credit hits,” “soft pulls,” or “soft credit checks,” typically occur when a company or a person checks your credit record as part of a background check.
Consequences Of A Low Credit Score
Let’s now discuss how a poor credit record can affect your ability to access essential things you need for a better livelihood.
1: Getting A Job
A poor credit record can be the one thing that keeps you from getting your dream job.
It is common for employers to check your credit score as part of your background check before awarding you an employment offer.
Elements of your credit record will help the employer validate if you can be trusted with sensitive information.
It does not matter how excellent you performed in all job interview stages. If the role requires a credit check, securing a position with a poor credit record will be doubtful.
You should remember that your credit record is just one of many factors employers will use to determine your suitability for a job.
Your reference checks, interview feedbacks and experiences also contribute to the final decision.
2: Car Rental
After a long week of preparation for your long-awaited road trip, the last thing you want is for the car rental agency to decline your car reservation because of a poor credit record.
Poor credit history can jeopardize your road trip!
You can prepay your car rental with a debit or credit card.
Car rental agencies can charge your credit card more efficiently than your debit account.
That’s why your credit record is not checked when you use a credit card to prepay for the rental car.
Given that it takes a few days for the transaction to go through when you pay for the car reservation with a debit account, you will use the car on a small credit until your payment transaction is cleared.
The car rental agency will conduct a soft inquiry of your credit record to validate your trustworthiness and creditworthiness for a small credit.
3: House And Apartment Rentals
Your credit record provides valuable information to a landlord about payment character.
Your prospective landlord can use this information to determine whether you are worthy of the tenancy and would pay promptly.
A pattern of late payments and other negative information about your existing bills will show that you may not pay your rent on time.
Landlord checks for any late payments, bankruptcies, collections, or other financial failures on your record.
Rental.ca outlined these factors.
- Your payment habits
- Any past bankruptcies
- Your current debt load (which is a reflection of your ability to pay rent)
- You pay debt accounts on time
4: Loan Approval
You may get away with hard-money lenders; otherwise, be prepared to have your credit record checked when applying for any credit product.
Lenders review your credit record to determine your worthiness for new additional credit.
It also helps lenders assess if you deserve a low mortgage rate.
Whether you want to apply for a mortgage loan, line of credit, credit card, car loan and more, it is necessary to keep an excellent credit history to ensure quick approval, better pricing and loan terms.
5: Utility Application
In Canada, most cell phone companies will check your credit report before entering a cellphone contract with you.
Also, some utility companies like Hydro (heating or water) may request access to check your credit profile before offering their services to you.
A poor credit record does not necessarily mean you will be denied these essential utilities.
The provider may require financial security deposits for a prepaid escrow account.
4 Financial Attitudes That Can Hurt Your Credit Record
The three-digit score at the top of your credit report reflects your financial choices, especially your attitude toward repayment.
These attitudes can bring down your credit score and make you unable to get approved for any credit product.
You should watch out for them if you want to repair your credit rating.
1: Holding Multiple Credit Accounts
Many credit accounts with different financial institutions can hurt your credit score.
There’s no rule for the optimal number of credit accounts you should hold, but you can maintain your accounts according to your need.
2: High Credit Balances
When your credit card balance goes up, it hurts your credit.
Your score will be negatively impacted if you have used more than 35% of your credit limit.
3: Getting Too Many Loans
If you have applied for many loans in the past twelve months, your credit score might be affected negatively.
4: Limited or Thin Credit History
Your credit rating is undoubtedly low if you have just activated your credit account.
When you rectify all these issues, your credit will jump off.
However, this article aims to help you do this very quickly. This is why we will give you 15 ways to skyrocket your credit score in less than three months.
Improving Your Poor Credit History
Now you know the financial practices hurting your credit record and the impact of poor credit history in your everyday life.
How can you go about improving your credit score?
You should ask yourself this question if you have a bad credit history. Unfortunately, it does take time to improve your credit history.
You should start with baby steps, like paying your bills on time, even the minimum, avoiding seeking additional credit products, and limiting your outstanding balances.
Over time, you’ll see improvement in your credit record, opening more doors to access low rates and better terms and services.