Your credit can be an important financial asset. If you obtain credit and maintain a high credit score and a good credit report, such credit can help you get loans, get great loan terms, and get low interest rates. However, if you have bad credit the exact opposite will occur. You may be denied for certain loans (unless, is some instances, you can obtain a cosigner), if you are approved for a loan your loan terms may be less than attractive, and if you are approved for a loan your interest rate could be extremely high. As such, having bad credit can cost you a lot of money by way of additional and high interest rates and by unfavorable loan terms.
First and foremost, bad credit will negatively affect your ability to obtain a loan. This can be very disheartening especially if the loan is for a big purchase like a car or a house. Additionally, should you plan on going to college, bad credit may prevent you from obtaining certain education loans. As such, you may either have to obtain another job in order to be able to pay the tuition, or you may have to find a cosigner for you loans. Keep in mind that a cosigner needs to have great credit in order for him/her to help you. Additionally, should you default on the loan, the cosigner is obligated to pay the loan.
Should you get approved for a loan, bad credit can negatively affect your loan terms. Things such as prepayment penalties, large down payments, collateral, and/or high fees (it is important to note that only certain fees can be charged because certain fees violate state usury laws, if your state has such laws) can all be tied into the terms of your loan. These things can severely restrict your flexibility in paying off the loan and in refinancing the loan, should you have such an option.
High interest rates are probably the biggest “penalty” assessed against people with bad credit when they obtain a loan. Banks use high interest rates to offset the risk of people with bad credit defaulting on their loan obligations. Therefore, if you have bad credit, you can expect to pay an interest rate that is far higher than a person with good credit would pay.
Basically, bad credit negatively affects your loan is every possible way. Therefore, get your credit in order and maintain it before you apply for a loan.