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Can Inflation Affect my Credit Score?

Inflation is a common issue in every country. You may have heard about this term in your classroom, college, or in your everyday life. But what does inflation really mean? Can it affect your credit score? And is it important to understand inflation? In this article, we will learn about inflation and find out can it really affect your credit score? So let’s begin by understanding more about inflation.

What is Inflation?

When prices of goods and services increase, the purchasing power of money goes down. This rise in prices is called inflation. The inflation rate is a percentile no. that shows the rate at which price is growing in a country. For example, Canada has an inflation rate of 4.8%. This means the prices of goods and services increased by 4.8% that particular year, or the purchasing power of money went down by 4.8% in that year.

You may be wondering what use is learning about inflation in credit and loans? Inflation doesn’t directly affect your creditworthiness or at least doesn’t impact credit the way you think it would. But higher inflation can affect your loan amount. Let’s understand it better with the help of the following example.

Let’s say you took a loan of $1000 in 2021 to purchase a phone. Then, in 2022 you decided to buy the phone again and took a loan of $1000, but the same phone that was costing $1000 in 2021 is now costing you $1048 in 2022. This rise in price is due to inflation.

Each country has varying inflation rates, and the lower it is, the better it is. Earlier, you took $1000 to buy a $1000 product, but now, you need to take more loans and pay interest on that amount to get the same product.

To sum up, below are the two main impacts of inflation on credit.

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  • Higher monthly payments
    If higher prices force you to choose between paying for necessities and paying your monthly debt, you will often miss the payment due date, resulting in a poor credit score. This can affect your future chances to get bad credit personal loans in Canada.
  • Increased debt
    Often people use a credit card to cover their everyday expenses and with the increase in the prices of goods and services people would spend more money from their credit card which results in higher usage of the credit cards and if you have learnt about credit cards you know that extensively using them can lead to a backward shift in your credit score.

Where to take loans during inflation to avoid declining your credit score?

You may not want to take loans during inflation, but emergencies can often arise, and you may require immediate financial support to deal with the situation at hand. Of course, you can still take loans from banks or any other lender, but failing to make timely payments can result in a backward shift in your credit score. Therefore, in such times, the best place to apply for a loan is with an online loan lender.

Why online loan lenders are a good place to take credit in inflation?

Unlike most loan lenders, online loan lenders do not have a long application process and more importantly, they do not check your credit report. And because they do not involve credit score, the loans they offer does not impact your credit report. Therefore, they are an ideal option for getting a personal loan for people with a bad credit score.

What benefits do online lenders provide?

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Online loan lenders use the modern way to provide loans to people. They use new technology and short application form to provide loans. Online lenders are an ideal option if you need personal loans in a short amount of time. Following are the main reasons people love them:

  • Short application process
    Online lenders focus on providing quick loans and do everything to facilitate transaction speed. Therefore, they have limited questions that are enough to assess a creditworthiness of a borrower. The application form can be completed within 5 minutes, and as soon as you submit it, a loan manager will verify it and contact you for final verification.
  • No credit check
    Like we said earlier, online loan lenders do not check your credit score. Instead, they check your income, employment status and spending habits to judge your payback ability. So, it is the best option to get instant no-credit check loans in Canada.
  • Short term loans
    The loans are mostly offered for the short term (1 year to 5 years). Moreover, they offer you flexible payment options so that you can choose the option that will fit your needs the most.

Is the inflation rate standard?

Like other stats and data, the inflation rate keeps on changing. For instance, in 2018, Canada’s inflation rate was 2.27%. In 2019, it was 1.95%. In 2020, it was 0.72%, and in 2021, it was 3.15% (Source Statista). So as you can see, the inflation rate keeps on fluctuating, but an ideal inflation rate popularly known as a healthy inflation rate is around 2%. This shows that the economy has a good growth rate.

Why you need to understand inflation?

Inflation, in general, is an important topic to improve your financial literacy. Unfortunately, 60% of Canadians have poor or fair financial knowledge and often, lack of basic financial knowledge can do more harm to a person’s finance. Inflation is a general term that affects various areas of our lives, and having knowledge on it can help us reduce its impact on our lives.

Wrap up

In the end, inflation is affected by a lot of factors that are normally out of a person’s control. But there are many precautions you can take to reduce its impact on your income and your loan borrowing ability. If you need a loan, you now know where to apply for it. Surely getting a personal loan without a credit check is a great option, but it has its own pros and cons.