Potential Impacts of a Negative or Positive Credit Score

Written by Fiona

Potential Impacts of a Negative or Positive
Credit Score

A credit score is a numerical expression used by organizations and lenders to evaluate an individual’s creditworthiness. The numbers range from 300-850. It is important to note that high credit scores make you an attractive borrower.  It is sad, however, that a great number of people are not aware of their credit scores. Some get to hear of it when they are about to make a big step such as taking a loan, starting a business or buying a home.

This score was created by the Fair Isaac Corporation which is today referred to as FICO.  The company produces consumer credit scores which are widely used by financial institutions hence the term FICO score. So generally, the FICO score is based on a credit report sourced from credit bureaus. The lenders, in this case, might be banks or credit companies while the organizations could include insurance companies, mobile phone companies, governments or landlords.


The credit score helps lenders to evaluate the potential risk and determine whether or not it is viable to extend credit in order to mitigate the loss caused by bad debt. You are probably wondering what factors are considered in this FICO score that helps determine your creditworthiness. Let us have a quick look as this could help your credit score or hurt it.

that determine your credit score

  • Payment history; do you pay your credit
    accounts on time? The report is submitted and if in case you were late in payments,
    it is recorded too in the credit report.
  • Current debt situation; they consider the
    amount of credit that is available to the borrower and the amount owed by an
  • Length of credit history; FICO scores take
    into account how long your oldest account has been operational as well as the
    new ones.
  • Credit mix; do you have mortgages, credit
    cards, loans of vehicles or signature loans? 
    Well, they check for account varieties and the stronger the mix, the
    better for you.
  • New credit score; did you open several new
    accounts within a short span of time? If the answer is a yes, it shows that
    there is a risk and the score is lowered.


The scores have got different weights used to calculate the credit score. Payment history makes 35%, a major determining factor.  Accounts owed make 30%, the length of credit history is 15%, and 10% each for new credit and mixed credit.

Now that we are aware of the credit score, let’s move
to the impact this score could potentially bring in your future financial life.
Why is it so important? Let us assume that you have an excellent credit score
of 850, what are its potential effects.

Impacts of a Positive Credit Score

Positive Credit Score Image Courtesy of Experian Ltd

  1. Allows
    you better interest rates

Interest is the cost you pay for money borrowed. Having a good credit score qualifies you for the best interest rates on loans and credit cards. This means that you will get charged on the lower end on credit card balances as well as loans.  For example, you can get better deals on a mortgage and end up making significant savings. Of course, this is because there are different scores that are needed for different loan options.

  • Improved
    chances for credit card and loan approval

If you have great credit scores, this
would make lenders consider you low risk and thus a more favorable applicant.
Therefore, great credit scores increase the chances of a loan or credit card

  • Gets
    you more negotiating power

Good credit scores can be used as leverage
to negotiate for lower interest rates when getting a new loan or credit card.
It avails you to more credit offers and better loan terms.

  • Improves
    the chances of approval for either renting an apartment or buying a home.

Landlords conduct a screening process
on tenants to know if they will be responsible in paying their rent. When you
apply and the credit score is good, you avail even more options and enjoy a
wide selection upon your application which is more likely to be approved.

  • Chances of getting a job are improved

Companies would always want to bring
in the best people when hiring. With this spirit of determination, some
employers will ask you to do a credit check prior to sending you an offer

  • Lessor no payments for security deposits on utilities

If you are looking for an apartment
or a rental place for your vacation, probably you will have to put down a
security deposit.  This is an upfront
payment that is given to the landlord so as to protect them from any damages or
cover for unforeseen expenses usually brought by occupancy. For example
repairs. Good credit scores bring smaller charges or a waived utility bill.

  • Get
    a phone just by signing  a contract

The cell phone service providers can
help you purchase the latest phone at a discounted price upon signing of a
contract. There will be no security deposit if your scores are good.

  • Better
    car insurance rates

Having a good credit score helps you
be able to pay less for insurance.

  • Access
    to higher credit card limits

Benefits will not just be on getting
your loan or credit card approved. A good score will get you an approval for even
larger loans and perks. The credit card limit will increase. The bank is more
confident that you will be able to pay the debt and interest; you enjoy
benefits from the perks and get an improved credit score. Everybody wins.


Having a positive credit score brings with it a lot of benefits. You are more likely to have your applications approved, get qualified for lower interest rates and exempt you from credit card interest. Moreover, it gives you bragging rights, such a good feeling. Surely, the good credit score of 750 and above is worth striving for. It is a demonstration that you are dependable and highly exceptional borrower, especially if you attain 800 and above.

Impacts of a Negative Credit Score

Negative credit score image courtesy of Intec Capital

Habits such as ignoring bills and maxing out credit cards affect a person’s creditworthiness.  The delayed payments and huge debts cause a plummet in the credit score.

You might be wondering what the big
deal is in having a low credit score. Here goes:

  • High credit card and loan interest rates

Bad scores make you a risky borrower who is more likely to default on a loan obligation. Lenders may offer you a loan but at very high-interest rates so that the risk is covered. Therefore, the more money you borrow from creditors or lenders, the higher the interest you will pay.

  • Reduced chances of credit and loan approvals

Lenders are risk-takers. However, there is a certain level to which they accept to take risks. If you have extremely low scores, your applications will be denied, as low scores are deal-breakers.

  • Difficulty in getting approval for a place to live

I said before, landlords check credit reports before they can approve a rental
application. Many people do not realize this but bad credit can make it
extremely difficult to get your dream home or apartment. In the event that a
landlord accepts you with a bad credit score, the security deposit to be paid
will be much higher.

  • Upfront
    payment of security deposits on utilities

such as electricity, cables and phone bills from the various companies may ask
you to pay security deposit upfront before they can establish any service in
your name. They will not put it in consideration that you have been paying
utility bills on time when you have a bad credit score.

  • No
    cell phone contract

options available for bad credit score customers is to get a prepaid cell
phone, have a monthly contract which is more expensive or no phone at all.

  • Reduced
    chances of employment

you know you might lose out on your dream job if you have a bad credit score?
Now you know! Employers may get the picture that you are not as responsible as
you look or assume that bad credit could be an issue that would affect your
performance at work. These may include bankruptcy, high debts and even
outstanding bills which are all red flags.

  • Limited
    access to loans

You may have a very nice idea or a concrete plan in which you would like to actualize through getting a loan from a bank and starting your own business. Bad credit scores limit the options available to you and the amount you wish to borrow hence one may find it difficult to fund a startup.

it is difficult to get a car loan with bad credit. In the event that you do,
you will end up paying high interest on the car.

  • High
    insurance premiums

Insurance companies believe that people with low credit file the highest claims. For this reason, they will charge a high premium on those who have lower credit scores with no regard at all of the actual claims filed.


Pay the balances on your accounts and try
to pay everything on time. We have seen how difficult our lives can be because
of bad credit scores. Credit scores of less than 500 are considered poor and
well below average. It shows that one is a risky borrower and greatly affects a
person’s financial freedom.

Parting Shot

should understand the importance of having a good credit history since our
lives are very much affected by it. The quality of our credit scores may either
offer us a wide variety of benefits or lock us out. Careful management of our
credit is the only solution.

hope that you find this article helpful. If you have any questions or any
recommendations, please feel free to get in touch with us. Thank you!


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