How Does Bad Credit Affect Me?

Your credit score doesn’t show who you are as a person, but what’s on your credit report can still have a huge impact on your life. Here’s what you can expect to happen if you have bad credit.

Higher Interest Rates

Higher interest rates should be one of the most obvious impacts of bad credit, but they often go forgotten when you’re just trying to get approved. Lenders don’t give the same terms to everyone who gets approved. Instead, terms vary depending on your credit profile.

The biggest variable is the interest rate. The more risky a lender perceives you as, the higher your interest rate will be. A bad-credit car loan could carry double-digit interest rates while good-credit approvals are less than 3 percent. Credit card interest rates can also vary by up to 15 percent depending on whether you were just barely approved or have stellar credit.

Increased Car Insurance Premiums

You may be wondering what your credit report has to do with car insurance, but the truth is it could make a several hundred dollar difference in your premium. The general idea is the better your credit, the more likely you are to have money in the bank.

If you have money in the bank, you’re viewed as less likely to cost the insurance company money by filing small claims, so they reward you with a lower rate.

Trouble Finding a Place to Live

It used to be that to rent an apartment, landlords just wanted to see that you have no evictions or recent history of late payments on your credit report. In today’s tight rental market, landlords can afford to wait for a tenant with stellar credit.

Many properties have imposed minimum credit scores that could be in the 700s. Excessive credit card balances or less recent negative items can also lead to a denial.

Mortgage lending has also gotten stricter after the housing bubble burst. To even be approved, you’ll need a high score, little to no outstanding debt, and no negative history within the past few years.

Being Denied for Jobs

Credit checks used to be reserved for only the most sensitive of positions, but today they are almost routine. Employers view your credit score as a sign of responsibility and risk.

Their thinking is that if you’re in debt, you have more incentive to steal from the company, accept bribes, or commit other misconduct that could cost the company money. While it may seem unfair when you need a job to pay down your debt, the high unemployment rate lets employers be choosy.

Having to Pay Utility Deposits

Your electricity, water and other utilities are on credit since you pay after using the services. That’s why utility companies check your credit when you open an account.

If you have bad credit, you could have to put down a deposit of $100 or more before you can get your lights turned on. While the deposit is refundable and may not sound like much in the grand scheme of things, moving expenses can stretch the best-planned budgets even without having to pay extra deposits.

Not Being Able to Open a Bank Account

Do you need to get your paycheck by direct deposit or pay rent or other bills by ACH payments? That could be a problem if you have bad credit.

Most banks now check your credit before you open any kind of account. Even if you aren’t applying for a credit card, they’re still worried about bad checks and overdrafts.

If you have a history of defaults or charge-offs, many banks will refuse to open an account, and others might require a deposit that won’t be available for withdrawal until you improve your credit.

Having Other Accounts Closed

Financial institutions, especially credit card lenders, regularly check your credit report. They care about both your payment history with them and your overall credit score.

If you’re consistently making only minimum payments to a lender, they may worry that you’re overstretched and reduce your credit limit. Similarly, if a lender sees you rapidly adding debt or opening accounts with other banks, they might worry that you’re about to run up a balance you can’t repay with them. Even if you have perfect history with a lender, that type of outside activity could lead to them closing your account or slashing your credit limit.

Not Qualifying for a Professional License

Like employers, professional licensing boards also review your credit report. Their thinking is if you can’t be responsible with your own money, how can you be responsible with a client’s? They also worry that you may have incentive to defraud a client or perform sub-par services due to trying to take on too much work to repay your debt.

Adding Stress to Your Life

Even if nothing bad happens right away, having bad credit still adds stress to your life. You’re constantly worried about when the debt collector will call next, whether your accounts will remain open, and how you will pay all of your bills this month.

Getting your credit back in order can give you both a personal and financial safety net that takes a weight off your shoulders.