A bad credit score can have a profound impact on various aspects of your financial life. Here are nine consequences you might face if your credit rating takes a hit.
1. You won’t be trusted with credit.
Your credit score will also affect many other aspects of your life. If you want to get a credit card or take out a loan, for example, lenders will likely turn you down if you have a bad credit score. This means that even if you have good income and are able to afford the payments on a loan or mortgage, without good credit there is no way for banks or other lenders to be confident that you’ll pay them back as agreed.
Similarly, landlords and property management companies require potential renters to have good credit before approving them for an apartment rental agreement. It’s not uncommon for landlords to ask prospective tenants about their past rental history when they apply.
If such landlords see evidence of bad financial decisions in someone’s past (such as unpaid bills), they may be less likely to rent an apartment out in the future.
2. With a Bad Credit Score, your interest rate will be higher.
When you apply for a loan, credit card or other form of credit, you’ll be offered an interest rate based on your credit score. People with poor scores are more likely to be rejected outright. If not rejected, they could get higher rate offers that make it harder to repay the debt.
The good news is that your credit score can improve over time by paying off existing bills on time, keeping new balances low and staying out of debt trouble. If you have a lower limit than you need right now because of bad payment history in the past, ask your card issuer if they’ll give you a higher limit when they see that your behavior has changed and improved.
3. You may lose your security clearance with a bad credit score.
Another consequence of a bad credit score is that you might be unable to keep your security clearance. If your employer requires a certain level of clearance in their employees’ lives, and you don’t have that clearance because of past financial troubles, it could cost you your job.
You can apply for jobs without a security clearance, though the process may be more challenging than usual. Most employers aim to ensure they’re not hiring someone risking sensitive information due to poor financial management. This concern stems from behaviors related to money management that could potentially pose risks.
4. You won’t get approved for a mortgage, car loan or other credit products.
This is the most obvious consequence of having a low credit score. If you have bad credit, it’s likely that you won’t be approved for a mortgage, car loan or other credit products.
This can make it difficult for you to get started on the property ladder. It can also have an impact on your ability to buy a new car or even rent a house. Furthermore, there are some utility companies who may require customers with poor scores to pay deposits when signing up for utilities like electricity and gas.
5. You may get denied insurance or other financial protection.
You may get denied insurance or other financial protection. Certain insurance types utilize your credit score to decide on offering you insurance and determining the premiums for your policy. Additionally, your credit score can influence the coverage available under your policy and the amount you need to pay in case of issues with the product or service purchased.
Having a bad credit score may lead insurers to charge higher premiums compared to someone with a good score. They might even deny coverage based on their criteria for what defines “good” or “bad” credit. This can be frustrating, especially as many remain unaware of this practice until seeking car or health insurance.
6. You may have to pay a deposit when you sign up for utilities like electricity, gas and water.
If you have a bad credit score, you may have to pay a deposit when signing up for utilities like electricity, gas and water. These deposits are forfeited if you don’t pay on time, which means people with bad credit can lose their deposit.
This is a barrier to entry for low income people since they may not be able to afford the deposit in the first place. It can also be a barrier to entry for you, if you are unemployed.
A bad credit score can keep you from getting hired by potential employers because they think it will lead to missed payments later on down the line.
7. You may find it difficult to rent an apartment.
If you have a bad credit score, it could be tough to rent an apartment. Landlords often run credit checks on potential tenants and will turn down applicants with low credit scores. If you do manage to secure an apartment, it could be more expensive than if you had higher scores.
8. Your bank may deactivate your debit card.
If your bank notices that you always overdraw your account, they might deactivate your debit card. If this happens, you will not be able to use the card until the balance is paid down.
This can be problematic for people who rely on their debit cards for everyday purchases and bill payments. It also means that if you lose your card, there will be no way to access funds in order to pay bills or buy necessities.
Facing late fees on bills could lead to more severe financial issues down the line. Should your financial institution close down due to poor management and bankruptcy, it complicates matters further. A negative credit score may hinder you from opening new accounts elsewhere in such scenarios.
This is because other banks won’t want anything to do with individuals whose past history indicates they don’t have good judgment when it comes to managing finances properly (source).
9. Poor credit scores can make it hard to start a business.
If you’re trying to start a business, the last thing you want is for it to be difficult. But if your credit score is low, it can be hard to get financing and other resources. That’s because banks and other lending institutions are more likely to lend money and provide other services for people with good credit scores than for those with bad ones.
The consequences of a bad credit score are just as serious for businesses as they are for individuals. If you own a business, a low credit score could affect your ability to get financing or even make purchases from suppliers who require payment up front. In some cases, this can lead to bankruptcy.
Bottom Line: A bad credit score can make life difficult in many ways.
A bad credit score can make life difficult in many ways, so it’s best to check yours regularly and take steps to improve it whenever possible. If you have a bad credit score and you are interested in building your credit worthiness, check out this guide on how to improve your credit score.
We hope this post has given you a better idea of how a bad credit score can affect your life. So it’s time to start building your credit score gradually and regularly monitor it so that you can unlock some amazing benefits (like these amazing benefits).
