How CRIB Blacklisting can affect your life?
We learnt, CRIB does not blacklist anyone. Instead, it merely collects credit information and repayment records of individuals and provides such information to member institutions on demand. If you have habitual delays and late payments, this is highlighted in your credit report and it is considered as Bad Credit that eventually clues the lending institutions to blacklist you. Follow this link, if you had missed our article on ‘What is CRIB Blacklisting’.
“What’s the big deal with bad credit?” you might ask. Since all the lending institutions now request for a credit report from CRIB before approving your credit application, having bad credit can make life extremely difficult. Here are some of the common ways how bad credit could affect your life.
1. Bad CRIB record, High interest rates on your loans
Lending institutions give credit scorings for potential borrowers who apply for credit. If you have bad credit, lenders charge an additional risk premium to the interest rate on your loans. The risk premium is for the likelihood that you will default on your obligations. This means you are given a loan with a higher interest rate, compared to a person with a good credit history for the same amount.
2. Lending institutions demand for securities on loans
Probably you will be asked to bring more collateral to secure your loans to ensure the lending institutions have a recovery mode, in case if you default on your payments. Collateral befits under the control of the lenders and you may have to oblige the terms and conditions of those institutions till you completely payoff the debt.
3. Mandated to bring in Guarantors
Lenders might require another person/s to co-sign your loans. This could be the case when you do not have adequate securities to collateralize or may be in addition. The guarantor is obligated to settle the installments when you fail to make the payments on time. You will not be able to have someone sign for you when they surely know you are a habitual defaulter.
4. Lower credit limits on loans, credit cards and bank overdrafts
If the bank is unsure of your credit repaying ability, they simply limit the facility amount. For instance, bank overdraft is a temporary way out if you do not have sufficient cash in current account that needs to be settled within a period. However, if your credit report shows number of dishonored cheques, your credit limit would be a matter of concern by another bank. This applies to credit cards and other loan applications as well.
5. Credit card and Loan applications may not be approved
Instead of charging you a higher interest rate, limiting the credit limit, asking you to bring securities or guarantors, lending institutions might decide to totally reject your credit application. This happens when your credit history is terribly bad and lenders categorize you a candidate with very high credit risk profile.
6. Getting denied for employment
Certain jobs, especially those in upper management require you to have a good credit history. For instance, the regulator of the banking industry looks at individual credit reports before approving them as bank directors. You can actually be turned down for a job because of negative items on your credit report, especially high debt amounts, bankruptcy, or outstanding bills.
7. Struggle in achieving your life goals
A bad credit history can limit the amount you are able to borrow to start a new business, even if you have a solid business plan and data supporting your business success. Lenders check your credit before giving you a car loan. Many institutions do not extend you a house mortgage loan unless you have a good credit history.
8. Financial pressure on your spouse
When one spouse has better credit than the other, the spouse with good credit will be the one applying for the loans and credit cards. The obligations and commitments are passed on to one person that invites complications within the family and mental distress.
9. Signing as a Guarantor to a loan could also be troublesome
Keeping aside the real scenario that you are blacklisted by the financial institutions due to your bad credit habits, be wary when signing for another lender as a guarantor. We tend to think ‘It is just a signature that my friend needs. It costs me nothing and why should I refuse’, and we proudly sign with the intention of helping. However, this could be worrying when your friend does not meet his loan obligations. Not only he is turning a bad debtor, but also pulling you into trouble. When he has late payments and dues, the same appears in your CRIB report. There is high chance that your credit application getting turned down due this reason.
Stay with Moneta to learn from our next article on ‘How to maintain good CRIB record – Best Habits’ as a credit cardholder, loan borrower and loan guarantor. It is with simple financial management techniques you can make life much easier.