Having a good credit score can be like having a magic key that unlocks a world of financial benefits. Imagine enjoying competitive interest rates, premium credit cards, and a higher likelihood of securing a car loan or mortgage. It’s the golden ticket to financial success!

Conversely, a bad credit score, ranging from 300 to 650 (poor to low), can have extreme consequences. It can result in loan and credit card applications being rejected, and in some cases, even job denials.

In simple terms, a credit score is a number, ranging from 300 to 850, that reflects your creditworthiness and the likelihood of repaying debt. These three digits hold immense importance in your financial life.
Financial institutions rely on credit scores to assess your financial health and repayment capability before granting loans. The higher your score, the higher your chances of getting approved. A good credit score expands your options as more banks and lenders prefer to work with you.
On the flip side, a less-than-optimal credit score can delay your retirement plans and cost you more money in the long run.

Now, let’s delve into the four ways a bad credit score can impact your life, and more importantly, the steps you can take to improve it.

1. Difficulty securing a mortgage or rental
If owning a home or renting a desirable property is on your bucket list, a solid credit score is crucial. Poor credit reduces your chances of securing a home loan, and landlords often prefer tenants with good credit. Improving your credit history can increase your chances of realizing your dream home.
2. Challenging loan and credit card approvals
A bad credit score directly affects your ability to secure loans and credit cards from mainstream lenders. The lower your score, the less likely you’ll find a lender willing to take the risk. Desperate applicants may turn to less reputable sources such as loan sharks, pawn shops, or payday loans. Failing to secure a loan means missing out on the benefits of personal loans, like debt consolidation or financing important projects.
3.Higher loan costs
Even if you manage to secure a loan with a bad credit score, you’ll likely face less favourable terms, higher interest rates, and lower financing margins. Over time, this can result in significant additional costs.

4. Job prospects and credit checks
While there is limited correlation between credit scores and job performance, some employers still consider credit scores during the hiring process. Bankruptcy, delinquencies, or excessive debt can put you in a disadvantageous position. Financial background checks are common in various industries, especially those dealing with cash, finance, and client accounts.

Now, let’s explore four steps you can take to fix a bad credit score:

1. Update your personal information: Ensure that credit reporting agencies have your updated details, such as current residential addresses.

2. Obtain a credit card: If your credit score isn’t too low, consider applying for a credit card. Use it responsibly for small purchases, and make sure to pay off the balance in full every month. This will gradually improve your credit score over time.

3. Pay your bills and debts on time: Timely payments play a significant role in your credit score, accounting for 45% of it. Make it a priority to pay your bills and debts on time every month. Consider setting reminders, using a calendar, or automating payments to avoid missing due dates. Late payments not only harm your credit score but also result in penalties and late fees.

4. Be mindful of your financial relationships: The people you entrust with your finances matter. Whether you act as a guarantor, share bills with others, or have supplementary credit cards, be cautious. Poor repayment habits by others can impact your credit score as well. Choose your financial relationships wisely and ensure responsible financial behavior.

Understanding how financial institutions perceive your credit score reveals its crucial importance for your future plans. Knowing your credit score gives you a clearer understanding of your affordability and how lenders view you as a potential borrower. It’s recommended to regularly check your credit score and plan ahead. Improving your financial health sooner rather than later is always beneficial.
At RinggitMinded, we take pride in helping Malaysians enhance their financial understanding. As part of our commitment, we offer FREE LOANCHECK+ REPORT to help you understand your financial health.

Sign up today!