The fallout of bad credit can extend beyond your finances. From keeping the lights on to making a phone call — it may complicate a lot of things in life.
As a general rule, subprime credit may make it harder to qualify for loans or lines of credit, and there’s a chance that you’ll end up paying higher rates for these products when you do.
But the impact isn’t limited to your finances alone. A bad credit score can affect a number of different aspects of your life, making certain things a little more challenging. To find out the far-reaching consequences of bad credit, keep scrolling. Here are five ways a low score may impact your life.
But First, What is a Bad Credit Score?
Generally, your score falls somewhere on a scale of 300–850. If it’s 670 or above, it’ll typically be considered a prime credit score. This means you may find it easier to qualify for loans with lower rates.
Anything from 580 to 669 is generally considered subprime. With a subprime number, your search for financing may be more complicated, but it’s not impossible. You may qualify for a personal line of credit for people with bad credit by searching carefully.
This is an important lesson to remember once you see how bad credit affects your life beyond loan applications. Although a bad credit score may be a barrier to getting what you want, it doesn’t mean you can’t get what you need.
5 Ways That Your Credit Score Can Impact Your Life
1. Utility Bills
Question: What’s one of the first things you do when you move to a new apartment or house?
Answer: You make sure your new home has utilities. Water, electricity, and gas are just some of the basic services you need to set up, and in many cases, you do this by applying for the utilities you need.
Utility providers may look at your credit report for the same reasons a financial institution may check your file. It helps them perform a risk assessment of you as a customer. They may look at your previous credit behavior — particularly your past utility payment history — to help determine your ability to successfully pay your bills.
A bad credit score may potentially mark you as a liability to your provider, as it may suggest that you don’t always pay your bills on time.
Usually, when a financial institution makes a similar judgement call about your creditworthiness, they may increase the interest rates on your loan. They may also require you to secure your loan with a collateral or guarantee it with a co-signer.
Of course, it depends on the type of loan and the financial institution. Some online loans may have different eligibility requirements. Do some research about the benefits and drawbacks of online credit products and be sure to read up on the individual terms and conditions of any loan you’re considering. Take the time to learn about the rates to see if they’re the right fit for your finances.
Getting Utilities with Bad Credit
Rocky finances that have impacted your credit score may complicate setting up your utilities, but there still may be some options. And they’re similar to the options you may have when borrowing money.
You may be able to offset bad credit by putting down a deposit, much like you would with a secured credit card.
If money is tight, it might be hard to gather up enough cash for a deposit. It may be an option to find someone willing to guarantee your bill payments. If they have good credit, your guarantor can go a long way to improving your chances of being approved. This individual may have their credit checked alongside yours. One thing to note is that you should only ask someone to act as a guarantor if you are sure that you will always be making each of your bill payments on time. It wouldn’t be fair to leave someone else responsible for your payments.
2. Employment Opportunities
If you’re on the hunt for a new job, you may have a lot of work ahead of you as you fill out applications and prepare for interviews. But don’t let your resume get all your attention. The next time you interview for a job, your prospective employer may check your credit as thoroughly as your CV.
The credit report affords them a condensed view of your borrowing history. It won’t tell them your exact credit score, but it will shed light on the payment history and debt load of each account.
Employers who use these checks look at this information to determine if you’re right for the position, particularly for jobs that involve handling money or confidential material. They want to see you keep your debt levels low and pay your bills on time.
The alternative — a report that shows you’re behind on your bills — may be a red flag. It might suggest to some employers you can’t be trusted with large amounts of cash.
This puts people with low credit scores in a challenging position. The longer it takes them to find a job, the more pressure is put on their finances, which may cause their score to drop even lower. And the lower their score is, the harder it may be for them to get a job.
This is a hard cycle to break. Unfortunately, it’s still within an employer’s right to perform these checks, so your credit may still be used to push you out of the running — even if you’re more than qualified for the job.
How to Be Prepared
Being prepared is one of the best ways to impress a hiring manager in an interview. This is true whether or not they perform an employer credit check. You’ll want to be able to answer their questions with confidence. So in addition to rehearsing your elevator pitch, you’ll want to be able to explain why your report is the way it is, if you’re asked.
Having references from previous creditors that prove you’re on track to paying them back may also help boost your candidacy.
Depending on where you call home, finding an affordable apartment can be a relatively simple experience. But there are some cities where the rental market is a cutthroat race to the last available apartment.
Regardless of the competition, it’s not unusual for landlords to ask for your credit score. Many landlords perform a credit check to help narrow down their pool of tenants, using it as a tool to assess your financial stability.
Ideally, they may want to see a prime score with a report free of delinquencies, as this suggests you’ll have no trouble paying rent on time.
A subprime score, on the other hand, may flag you as a potential risk to some landlords. Depending on how low it is, they may reject your application and go with another tenant.
Renting with Bad Credit
If you’re working with a subprime score, you may still be able to sign a lease with a bit of work. You may be able to boost your application by putting down a larger deposit or by signing with a guarantor. A word of caution – this approach is not recommended unless you’re confident that you’ll be able to successfully make all of your rent payments without having to rely on your guarantor.
4. Cell Phone Bills
It’s no longer the ‘80s, back when only the wealthy and those with corporate jobs had the luxury of a mobile phone. Now, many people have one, and they’ve replaced landlines, payphones and letters as a way to keep in touch. It may be the fastest way to contact someone in an emergency.
Nevertheless, it’s not always easy getting a cell phone if you have bad credit. Like the landlords, employers and other utility providers, carriers may look at your credit report. This peek into your finances helps them decide if you’re going to be able to pay your bills each month.
If your report shows you generally pay your bills on time, carriers may take it on good faith that you’ll pay your cell phone bill on time, too.
If the history on your report shows that you’re chronically late paying your bills, your application may not get approved.
Getting a Cell Phone Plan without a Prime Score
There are some ways to get around this. You may get a phone or an affordable plan if you’re able to pay for these things up front. You may also be able to lock into a plan if you put down a deposit, apply with a co-signer with good credit, or join an existing family plan.
5. Auto Insurance
Credit is such a common component of the auto insurance industry that it has its own scoring model. Many insurers check what’s called your auto insurance credit score before they set your premiums. This model relies on data pulled from your general credit report.
Where you fall on this scale may impact what sort of premiums you end up paying. If you’re on the low end, similar to other credit scoring models, you may end up paying more. Like a bad credit score, a bad auto insurance credit score suggests you may be a bigger risk than those closer to the top of the scale.
But rather than determining the likelihood of paying your premium on time, it calculates the probability you’ll file a claim.
Lowering Your Premiums
While this auto insurance credit score will play a large part in determining your premiums, it’s not the only factor involved. Insurers will also look at your past driving record, as well as some other elements.
You may be able to offset a low score by balancing it with a spotless driving record. Do your best to avoid parking and speeding tickets, and always practice safe driving to reduce your risk of being in a collision. Even if this has no impact on your insurance, these habits may help keep you safe on the roads.
Building up Credit History May Help Different Aspects
When it comes to bad credit, there’s sometimes a Plan B, or contingency plan, to getting what you want. But as you’ve seen here today, it usually involves paying more up front or signing with a guarantor.
While these are solid techniques when you’re dealing with a subprime score, they may not be sustainable for your finances. It’s hard always providing a deposit or asking family to cosign.
That’s why it’s so important to focus on building up your history. As a general rule, you’ll improve your chances of getting what you need with fewer complications if you’re able to build up your credit history.
Because, let’s face it, a prime score can make some things easier and more convenient.
If you plan on building your credit history, focus on paying your bills on time and lowering the balances on any lines of credit or credit cards. These are two of the biggest factors impacting your score.
How Does Revolving Credit Fit into This?
If you compare a line of credit vs credit card, you’ll notice there are some marked differences. However, one of the main similarities is how financial institutions categorize these loans as revolving credit.
Revolving credit may contribute towards your credit utilization rate, which is a measure of how much credit you use compared to your credit limit. A low credit utilization rate may help build up a positive history in your file, while a higher rate may build negative history.
If your financial institution reports your usage and payment history to one of the three major credit agencies, this rate may impact your overall credit history.
There’s no denying the impact your credit score has on your life. It can shape the experiences you face, influencing everything from setting up utilities to getting auto insurance. A subprime score may complicate these experiences and make achieving your goals more expensive.
Doing what you can to build a credit history may smooth out the kinks of renting an apartment or getting a new job. And that’s to say nothing of the direct effects it has on your ability to qualify for a loan or line of credit.
The next time your score creates a barrier to getting what you want, sit back and really look at your finances. Commit to good credit habits and do your best to add positive credit entries to your report. It will no doubt be hard, and it may take time to see results, but your efforts will pay off if you can manage it.