What Happens When You Have Bad Credit

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Your credit score is important, though there are some personal finance enthusiasts who try to ignore it.

The biggest reason people try to brush it off is because some of the factors that make your credit score inch up actually encourage you to interact with debt. Whether you’re paying off an installment loan or paying off your credit card in full every month, there are sections of the PF world that want none of it.

But taking on debt isn’t the only time you’ll need a good credit score. In fact, not having one or having a bad one can negatively impact your life in other ways. To be able to ignore that fact is a privilege.

What is bad credit?

You might know you have bad credit. You know you’ve missed payments and have bill collectors blowing up your phone.

But if you have no idea what your credit score is, you’re going to want to check your credit score and full credit report to get started.

There are lots of different types of credit scores. For today, we’ll focus on one of the most common: Your FICO score.

Your FICO score is three numbers that — in most models — falls between 300 and 850.

According to Experian, you can tell if your credit is good or bad by finding it in the following ranges:

  • Exceptional: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Very Poor: 300-579

Bad credit can up your car insurance rates.

According to the Zebra, those with poor credit are charged $635 more per six-month policy terms than those with very good credit.

Why?

Because actuarial scientists have figured out that people with poor credit file claims more frequently. Those claims tend to be for higher dollar amounts.

I think there’s a lot behind those numbers. Important stories that aren’t being told. Stories that would make this practice look overly punitive and perhaps predatory.

Utilities require upfront deposits from those with bad credit.

If you have bad credit, your utility provider is likely to require a deposit before turning services on. The worse your credit or overall ability to pay, the bigger that deposit is likely to be.

Again, with punishing people who have trouble paying their bills.

You may be able to get around this down payment requirement if you have a family member in the area with a history of paying their utility bill on time. Some companies will work with you and waive the fee if the family member vouches for you.

Bad credit can make it hard to get an apartment.

If you’re having trouble paying your bills and are trying to downsize so your monthly burden is more manageable, be prepared.

There are punitive measures in place in the housing sector, too.

To rent an apartment, you will often have to disclose your credit score. If your credit score is Fair or Very Poor, you can expect a higher security deposit.

Which I know you can’t afford because those bills aren’t getting paid. That’s the whole reason you’re trying to downsize.

It doesn’t make sense. But it’s unfortunately true. Should you ever find yourself in a situation where your income is stunted, you’ll ideally want your credit score to be as high as possible given your situation.

Bad credit can make it hard to get a job.

Technically, a bad credit score can’t keep you from getting a job.

But a bad credit history can.

If that sounds like splitting hairs, that’s because it is. Your credit score is derived from your credit report, which contains your credit history.

While employers are allowed to check your credit history rather than your score, odds are that a bad score is going to line up with poor credit history, too.

Not all employers do this. However, if your position requires you to handle a lot of money or very expensive items, they technically can. A poor credit score could keep you from landing jobs in money management positions, or even managing a cash drawer. You could also be rejected if you’re applying for a position where you’d be handling other people’s personal data.

You do have to consent before they can pull your credit report.

Bad credit makes it hard to get a non-predatory loan when you need it most.

And of course, bad credit makes it hard to secure an affordable loan. When you have fair credit, you stand a chance of getting approved for a traditional loan at very expensive rates. But nontraditional loans are even more expensive.

People also start looking to nontraditional loans when they have Very Poor credit or otherwise can’t get approved for a traditional loan.

It’s a frustrating situation to be in: Wanting to catch up on your bills but not being able to because the only financing available to you is ridiculous.

If you find yourself in a situation where you have bad credit, you may benefit from increasing your income — preferably to a level where it’s consistent and stable.

That seems like an obvious goal. But make it a finite one. Once you’ve reached a point where you know how you’re going to put the next meal on the table, take a step back and look at how you can improve that credit score now that you’ve got the means.

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  1. Pingback: How to Negotiate Your Rent | Femme Frugality

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