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Bad credit can affect your life in ways you never thought possible, and this is true no matter where your score falls in the bad credit range. The thing is, having a FICO score below 580 makes it harder to get a credit card, buy a house, buy a car, or even get a job, and you’re likely to pay more fees and higher interest rates until you’re able to raise your credit to a fair or good range.
If you have bad credit, you should be aware of all the ways this can affect you. Here are seven examples of how this is possible and what you can avoid by taking steps to increase your score right away.
1. Fewer credit card and loan options
Lenders view applicants with lower credit scores as riskier, which should come as no surprise. However, you may be surprised at the sheer number of credit cards and loans that you cannot qualify for with a low credit score. The fact is that all credit cards and loans with the best rewards go to consumers with a “good” credit score of at least or a FICO score of 670 or higher.
With bad credit, you may not qualify for a personal loan or line of credit at all. There are some credit cards for people with bad credit, but these are usually secured credit cards that require cash as collateral. Unsecured credit cards for bad credit are very few in number and tend to have few perks and minimal (if any) reward opportunities.
2. Higher interest rates and fees
If you can get approved for a credit card or loan with bad credit, you will definitely pay a higher interest rate and more fees along the way. Higher rates can make it significantly more costly to hold a balance over time, meaning that everything you buy will cost a lot more than what you originally paid.
Loan fees can also add up quickly. Some bad credit credit cards charge annual fees and application fees, while personal loans for bad credit tend to charge an issuance fee.
3. Difficulty getting a mortgage
If you have a low credit score, you are unlikely to qualify for a regular mortgage. You can qualify for a government-backed home loan like the FHA, according to Rocket Mortgage, but if your credit score is below 580, you’ll need at least a 10 percent down payment.
You may be able to apply for some mortgages with a guarantor, but your options will still be limited.
4. Problems with rental housing
You may even have trouble renting a home if you have bad credit, mostly because landlords will want to do a credit check before they can approve you for a property.
If you have a low score or a lot of negative credit reports, property owners may require you to find a guarantor.
5. Higher insurance costs
Auto insurance companies determine premiums based on factors such as your age, the car you drive and your driving history, but many also consider your credit score. Some consider your ability to pay bills on time and use credit responsibly as an important factor in determining how much risk you pose as a driver.
If you have bad credit, you will almost certainly pay higher insurance costs as a result.
6. Fewer Career Opportunities
In fact, employers cannot check your credit score for hiring purposes, but they may request a modified version of your credit report. This can help them verify information about you, including whether you usually pay your bills on time.
If your credit score isn’t up to par, it could spell disaster – a low score or negative information on your credit report could mean a missed job opportunity.
7. Upfront utility costs
You may have to pay more upfront utility installation costs if you rent an apartment or house on your own because utility companies also view people with bad credit as risks.
Utility deposits are refundable at some point, especially if you close your account in good standing, but they still charge you extra money during the move.
Bad credit makes life harder than it should be, but you do have some control over where your credit is. For example, by taking steps to improve your score, you can avoid many of the hassles and extra costs that we have described.
Luckily, better credit can become a reality if you start right now. For the greatest impact on your credit in the shortest possible time, you should take steps such as paying all your bills on time, paying off collection debts, and paying off any unsecured debts you have.
With a little time and patience, you can see an improvement in your credit score and your lifestyle in no time.
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