Credit report is a snapshot which provides information about your credit handling capabilities. It provides a clear picture of how you have handled credit in the past and what percentage of the available credit do you generally use. This is a critical factor which will influence the amount of loan you can avail and at what interest rate will the loan be approved.
Critical Factors that affect your credit report are:
1. Payment History
It is an important determinant which shows whether the lender can trust you enough to get his money back.
2. Debt
Using too much of your available credit has a negative impact on your credit report. For example you have a credit limit of BHD 1000 and you are using BHD 900 then your credit utilization is 90% which is not a good sign in the credit report.
3. Length of Credit History
This is important as it acts as a measure of your experience with managing credits.
Affects of Bad Credit Report
There are ample ways in which having a bad credit can affect you when any financial assistance is needed.
Some of them are listed below:
Rejection of loan and Credit Card Applications
Having a bad credit report influence immensely the likelihood of getting approved for a loan or even a credit card. The chances that a bank or a financial company would approve your loan or credit card application are scarce. Even if you have a mediocre credit report the odds are high that the loan may get denied.
Thus, having a bad credit report negatively impacts the chances of getting a loan or credit card approval.
Higher Interest Rates
Bad credit leads to banks and other financial institutions charging a higher rate of interest for the approved loans. A good credit report helps one to strike the best deal possible, but a bad credit report can make getting loans, credit cards at lower interest rates almost impossible.
E.g. If you have no mark on your credit report the bank will charge 3-10% which may increase tremendously to about 15% if you have a bad credit report.
Higher Down Payments
If you have a bad credit report the banks or credit institutions would be asking for higher down payments in case or car loans, home loans etc.
The down payments are generally 10-25% in Bahrain but in case of bad credit the bank may as you to pay up to 40% as down payment.
Denied Certain Jobs
You may get denied for upper management jobs or jobs in the financial industry as these posts mandate you to have a good credit history.
Outstanding bills, bankruptcy has a bad impact on your employment profile, thus leading to missing out opportunities. This is not a necessary criterion for getting a job, but it surely shows your money management skills to the employer.
Difficulty in Renting an Apartment
Leasing out an apartment is not an easy task but mingled with bad credit it may be impossible to find an owner willing to lease the property to you.
Owners do not have access to credit report but while doing the formalities they may ask you for your credit report and that will not work out in your favour. Some owners may still be willing to rent out the apartment to you but may demand for high advance payments.
Long Term Impact
Bad credit report is not something you can get rid off easily. Often times people assume that they can get away with faulty payments once in a while, this is a myth which will have a long term impact. It may sometimes lead to no loans and credit cards for 1-10 years depending on the severity of the deferred payments.
Conclusion
Credit reports can be tracked by various means and a continuous check on it is necessary. You may never know when you need to get a loan for buying a new house, a new car, education etc. The credit report does not only affect your ability to get a loan but also influences the ability of your spouse and other family members to get a loan. Thus, maintaining a good credit report by paying off debts on time is important.
