Still, there are several other lesser known consequences of low credit scores that can disrupt both personal and professional aspects of your life. It has also been observed across leading credit bureaus that scores above 750 have a higher loan approval rate in comparison to lower credit scores. This further highlights the difficulty in securing favourable loans, exclusive credit cards etc., in seamless fashion.
What are the downsides of a credit score below 600?
According to Raj Khosla, Founder & MD, MyMoneyMantra “Credit score is undeniably the paramount factor behind loans, advances & credit card issuances. Key downsides of a score below 600 include higher scrutiny, repeated rejections, restricted access to credit facilities, approvals at higher interest rates, negligible scope of negotiations, etc.”
Beyond the obvious financial hurdles, here are three lesser-known yet impactful consequences of maintaining a credit score below 600:
1. Limited access to credit facilities
Individuals who have credit scores under 600 are often denied access to basic credit instruments such as credit cards, flexible personal loans or even overdraft facilities.
Due to the advent of artificial intelligence, nearly all lenders are now becoming more cautious with low score borrowers due to rising delinquencies in unsecured lending. It is hence important to remember that without availability of credit individuals may struggle to fund medical emergencies, business expansion and education related expenses.
2. Higher interest rates and unfavourable loan terms
Even in cases when credit is extended to low credit score borrowers i.e., individuals with scores lesser than 600, even in such cases the cost of borrowing is generally much higher in comparison with individuals who have higher credit scores.
Now, higher interest rates translate into larger EMIs and greater financial burden over time. The situation becomes even more complicated if the income is unstable and erratic.
3. Employment and housing challenges
Though not widely discussed, a low credit score can also influence your chances of securing a rental apartment or a reputable job in financial services. There are several employers, particularly in BFSI sectors who check credit reports as part of background verification of applicants.
Further, landlords in metro cities such as Mumbai, Delhi, Bangalore etc., are also beginning to request for credit reports to understand and analyse the applicant’s financial discipline.
Therefore, these are the three crucial aspects that you must always keep in mind while applying for new credit instruments such as credit cards, personal loans etc. The reason why it is important is because your credit score becomes a part of your character. It stays with you for years together. It shows how consistent you are with your repayment and fulfilment of your financial commitments.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
