The Risks of Refusing Credit

 

Have you ever found yourself in need of an emergency loan, but been refused?

If so, then you know how frustrating this can be. If not, maybe you’re lucky enough to have never been refused credit, but maybe that just means that you haven’t needed it before! Regardless of your situation, whether or not you’ve been refused credit, there are some important things to know about this situation and how to handle it. These things will help you understand why your credit has been refused, how to prevent it from happening again, and what steps to take if this becomes a recurring problem.

1. Credit Impacts Employment

Relying too heavily on cash can be risky when it comes to your career. If you’re looking for a new job, turning down credit could put you at a disadvantage—especially if most of your job opportunities are for positions that require credit. Employers often use credit reports as part of their background checks to determine whether an applicant is responsible enough to hold a position with them. In these cases, refusing credit may affect more than just your short-term budgeting; it may have longer-term implications for your employment status.

2. Get a Free Credit Report

If you’re rejected for credit, check your credit report to make sure there aren’t any errors. It’s also a good idea to monitor your report regularly, as it can be used to determine your eligibility for new lines of credit and other services. If you see something on your report that isn’t accurate, contact one of these three major credit bureaus—Equifax, Experian, or TransUnion—to work with their dispute process. (You may want to do so even if you don’t think an error is present.) And if you find yourself in a situation where your request for new credit is repeatedly refused, ask why; maybe there’s another option you should consider.

3. Keep an Eye on Your Credit Report

When you apply for credit, be it in person or online, your credit report is checked to decide whether or not you’re a reliable borrower. That’s because creditors will base their decision on how you’ve handled previous lines of credit. Checking your credit report annually means that any discrepancies—such as inaccurate information—can be corrected before they impact your ability to borrow money. And remember, if you ever suspect someone else has tampered with your personal information (such as by opening accounts under your name), then contact both credit bureaus immediately; identity theft is never something to ignore.

4. Why Inquiries Matter

you ask a bank or lender to review your credit report and scores. This will lower your score by a few points. However, an inquiry remains on your report for two years so multiple inquiries in that time can result in lower scores and make it more difficult to receive approved offers. Furthermore, each time you request information about a loan or line of credit your score can drop. For example, you may have a valid need to check your credit reports if:

* You’re applying for new lines of credit such as getting new credit cards or taking out loans to purchase assets (property, etc.). The number of times your social security number is run by banks and lenders determines how many times there are inquiries on your report. This can lower your score significantly.

* You have been a victim of identity theft or had accounts opened in your name without permission. In either case, you will likely want to check with each bureau every 90 days to ensure that all inquiries are accurate and no others have been made in error.

Also, keep in mind that refusing credit doesn’t guarantee you won’t receive an inquiry when you apply for an account later on.

 

5. Pay Off Your Balances in Full

If you do have a good credit score, but you’re only making minimum payments on your credit cards each month, it can take years to pay off your balance. Instead, commit to paying off your balances in full each month. The sooner you pay off your debt, the sooner you can start saving money instead of spending it on interest fees! You may even want to apply for a balance transfer card if you think that carrying high-interest debt is dragging down your ability to save; look for one with an introductory 0% APR period.

6. Do Not Close Old Accounts

If you think having a lot of old accounts will put you at risk for identity theft, think again. When your credit score is calculated, it looks only at active lines and recent activity. An open account that hasn’t been used in years won’t make a big difference to your score. Closing an old account could do more harm than good by lowering your average age. And if you close your oldest account because it has a balance with an outstanding bill, don’t worry: Your payment history is always reported regardless of whether or not there are balances on all cards. Also know that when opening new accounts, companies want to see a solid mix of old and new—so keeping just one card may not be enough to convince them to approve you for another line.

7. Avoid Speeding Tickets and DUI’s

Your credit score is used by several different industries to determine your creditworthiness. Those who have low scores tend to pay more for insurance, are less likely to get approved for a mortgage, and may not be given loan options in foreign countries. One such industry that relies on credit history is law enforcement. When you’re pulled over for a traffic violation, an officer will run your license plate through his or her database to check whether you have any outstanding warrants or unpaid tickets.

8. Be Cautious When It Comes to Cell Phone Insurance Plans

Before you sign up for a cell phone insurance plan, understand that you are paying an average of $1.50 in premiums every month to protect an investment that, if broken or stolen, can be replaced for as little as $100. The cost also depends on your carrier and how much it would cost to replace your device if damaged. Many carriers offer protection plans at discounted rates instead of going through a third-party provider, so consider those options first before choosing a third-party provider.

9. Consider All of the Costs

You don’t want to get into credit card debt, and that’s understandable. But refusing credit altogether is not always a good idea. Often, people end up paying much more for things they need if they wait until payday or until they have saved enough money to buy them outright. For example, say you need a new bike; with your cash in hand, you visit your local shop and negotiate a good price on one that fits your budget perfectly.

10. Don't Check Into Rehab Unless Necessary!

People who are addicted to drugs and alcohol, or who have medical conditions requiring regular treatment with drugs such as painkillers, often need to be able to manage these issues while maintaining a job. For many people in these situations, going into rehab can be just what they need to begin living a normal life. However, many people would benefit more from simply refraining from using addictive substances and seeing a physician regularly than they would from being locked away in an expensive rehabilitation facility.

If you think that you might need help with substance abuse, but you aren’t sure whether your situation is severe enough to necessitate treatment at a rehabilitation center, you must seek help from professionals; an addiction specialist will be able to evaluate your situation and help determine whether rehab is appropriate for your needs.

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Blog - The Risks of Refusing Credit