How Bad Credit Can Impact Your Life
Constantly paying bills late comes with dire consequences. Not only will you have to deal with late fees, but your credit will also take a nosedive. This can make it hard to buy a house, rent an apartment, or even find a job. Below we’ll explore some of the ways poor credit can negatively impact your life.
1. Difficulties Getting a Loan
Whether you want to buy a house or start a business, you’ll need a loan to achieve many of life’s milestones. But before a bank lends you money, they want to know how likely you are to pay them back. One of the ways they do this is by checking your credit score. They’re less likely to lend you money if they discover you have a low credit score.
Folks hoping to purchase a home using a conventional loan will need a credit score of at least 620. If your credit isn’t that high, you may qualify for an FHA mortgage. However, you’ll need to have 10% of the cost saved for a down payment and be prepared to pay mortgage insurance. If you want to raise your credit to qualify for a better home loan, try using a credit builder card. These cards, being secured, are easier to qualify for, and they help you improve your credit each time you make a purchase.
2. Fewer Options for Renters
Let’s say you’re not ready to buy a home and are happy to rent for a while. Unfortunately, you’re still in the dog house if you have bad credit. Landlords want to know that you’re able to pay rent on time. So they often check an applicant’s credit history before letting them sign a lease. If you have a poor credit history, you’re less likely to land your dream apartment.
However, just because you have bad credit doesn’t mean you have to live in your car. Some landlords will rent to you if you have a cosigner. This is a person who agrees to pay your rent if you fail to make your payments. If you don’t have someone who is comfortable cosigning, you may be able to offer the landlord a higher security deposit.
3. High Interest Rates
The interest rate on a loan or credit card is the cost of borrowing money from a particular lender.
This cost is expressed as a percentage of the amount loaned. Banks and credit card issuers charge interest in order to make a return on the transaction and to limit risk. Having a poor credit score indicates that you’re a high-risk borrower, so you’ll be charged higher interest.
Banks will typically advertise an average rate for loans, but this doesn’t guarantee that you will receive this rate. People with poor credit may receive a rate that’s above the average, while people with strong credit could receive a rate that’s below it. To get a better understanding of how your credit score could impact your loan costs, use a loan savings calculator.
4. Problems Landing a Job
Most employers don’t need to know your credit history unless you’re applying for a role where you’re handling company finances. If you’re applying for a finance position, though, there’s a chance they’ll ask to check your modified credit report. This is a way for the company to vet how financially responsible you are before handing over access to their accounts.
If it’s discovered that you mismanaged your finances, you may not get the job. Fortunately, there are a few ways you can prepare for a credit check with a future employer. First, you need to know your own credit history, even if you think it’s pretty good. You don’t want to get blindsided during the interview process and find out there’s something negative on your credit report. If your credit is less than stellar, be prepared to explain the reasons to the hiring manager.
5. Trouble Getting a Cellphone Contract
As of 2020, less than 40% of U.S. households had landline phones. If you’re like most Americans, you rely on your cellphone to stay connected to your friends and family. However, having a poor credit score can make it harder for you to get approved for a cellphone contract. Like landlords, cell phone carriers prefer to avoid customers with poor credit because they’re less likely to pay their bills on time.
The good news is, there are still options for people with poor credit to get cellphone service. Similar to landlords, many cell phone carriers will let you use a cosigner or put down a higher security deposit. If neither of those options work, you could use a prepaid phone plan. However, those plans don’t typically cover the cost of the phone, costing you hundreds of dollars upfront.
6. Strained Personal Relationships
Forty-two percent of U.S. Millennials say a poor credit score would make a potential partner less desirable. Since many couples combine finances once they get married, it makes sense that most young adults look for financially responsible partners. Although each individual has their own credit score, a poor score can negatively impact the other partner when applying for joint accounts.
You don’t need to disclose your credit score on a first date. However, it’s important to talk about finances once a relationship gets serious. If you have a bad credit score, be open with your partner about this. Let them know that financial stability is important to you and that you’re taking the necessary steps to improve your credit.
Poor financial habits have the power to seep into every aspect of your life. However, there are actions you can take to improve your credit score. By spending wisely and paying bills on time, you can slowly begin to improve your credit.
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