All of us who have taken on any form of debt have a credit score between 300 and 850. This score, made up of percentage of on-time payments, length of credit history, credit utilization, number and type of accounts, and amount of new credit inquiries, affects your ability to take out credit and the terms attached to said credit.
But why should you care about your credit score? Does it really matter that much? Let’s talk about how a bad credit score can hurt you.
1. You can get turned down for an apartment. Every rental company will run your credit to determine whether or not you are likely to make complete and timely rent payments. A bad credit score can keep you from getting approved for an apartment without a cosigner.
No one wants to need a cosigner. If you are unable to make payments, you will be forcing a friend or family member to cover you. If they don’t, their credit score will also be messed up. Thanksgiving is going to be super awkward when everyone finds out that Grandma used her limited fixed income to pay your rent.
2. You can get turned down for a job. Some workplaces will pull your credit report to determine whether or not they should hire you. It’s perfectly legal, as long as the employer informs you that you didn’t get the job due to bad credit. So now you can’t find income OR credit. Rough place, isn’t it?
3. You may have to pay utility deposits. While you don’t take out credit to pay utilities, utility companies will run your report to see if you are creditworthy. If not, you may be required to pay a deposit in order to receive service. Of course, you will get this deposit back once you cancel your service provided you made all payments.
4. You can be denied home ownership. A mortgage is likely to be the largest debt you incur in your lifetime (provided you are not a business owner). Do you really want to be rejected from the great American Dream of owning a home? Your white picket fence and two point five kids will have to wait if you have a low credit score.
5. You may lose the opportunity to pursue your dream. Speaking of being a business owner, you will likely need capital to turn your business dreams into a reality. A bad credit score will keep you from getting approved for a business loan. Now the world will never know the genius that is your bottle opener/fan/beach towel invention.
6. You may have to pay more for insurance. For both property and car insurance, you are more likely to have a higher rate with low credit. Why? Low credit scores tend to equal high claims. Apparently those with less cash are more likely to file fraudulent claims. Get your credit score up so your insurance companies don’t assume you to be a delinquent.
7. Your interest rates are likely to be higher. Have you ever heard “high risk, high reward”? It means that the riskier a situation, the better the payout. When banks loan to people with low credit scores, they inflate the interest rates. You accept the larger interest rates because it’s the only way for you to get a loan and they give you the loan because there is a potential to make a lot of money off of you.
8. You’ll have to put more money down. Banks may require high risk individuals to put more money down on things like homes and cars. Because there is more of a chance that you will not pay (as opposed to those with good credit scores), the bank requires a decent amount of proof that you have accessible cash. Most individuals with bad credit also have low cash reserves, so this can be an issue.
9. You will likely be more stressed than your peers that have good or adequate credit scores. Assuming that your credit score is bad AND you lack accessible funds, you really don’t have room in your life for any emergencies. Unfortunately, emergencies seem to follow around those who are least prepared for them.
This can leave you with a fair amount of stress. What if the car breaks down? What if someone gets sick? What if you or your spouse loses a job? People with bad credit could be completely and totally financially derailed by any of these situations. Stress can make you lose sleep at night and make you physically ill, making emergencies even more likely.
10. You could have relationship troubles. Despite what the Beatles may have told you, love is not all you need. Financial security is important and finances are the number one cause of divorce in the United States today. Bad credit scores (and the lack of cash that generally comes with it) can destroy a relationship. Now your credit sucks and you’re going to die alone.
And what about your other relationships? Bad credit means you may have to ask family members for loans or to cosign a loan for you. Not only is this a serious pride-kill, but it can also hurt your relationships if you are unable to pay. Asking family for money is never a good idea, avoid it like the plague.
Having a low credit score can hurt you in so many ways. You are less likely to get approved for credit and if you do get approved your terms will be unfavorable. Not to mention it can really put a damper on your personal life. Educate yourself about your credit score and take steps to improve it to put yourself in a better financial situation.
How’s your credit score? Has a bad credit score ever hurt you in one of these ways?