We all know that the higher your credit score is, the better your financial life can be. But what does it mean when you have a bad credit score? Are there really that many repercussions besides difficulty getting a loan or being forced to accept high interest rates?
Qualifying for a low-interest mortgage is reason enough to maintain a high credit score, but it’s far from the only reason. Here are six other ways a bad credit score can impact your finances. Being aware of these circumstances should help encourage you to stay on top of your credit:
1. It Raises Your Interest Rates
You’re probably aware that low credit means paying higher interest rates. While you can still get some loans here and there, you’ll be paying more interest than someone with better credit.
For example, let’s say your credit isn’t great, but you manage to secure an auto loan. You will likely pay a higher interest rate. Not only will you be paying a ton of interest, but it will also take longer to pay down the principal you owe. Ultimately, you’ll pay more to drive those new wheels.
The good news is, you can build up your credit score by spending wisely and paying debts on time. One way to do that is by using a credit builder card. This type of card requires you to make a deposit to open a line of credit. Then, the deposit is used as collateral against what you spend. This is how companies can afford to give new cards to people with poor credit history or a lack of one. Paying off your card on time each month will help boost your score over time.
2. It Can Affect Your Job Search
Are you currently hunting for a new job? You may need to get your credit score under control. There are a number of employers that look at credit history when selecting new hires. In these cases, a bad credit score will exempt you from getting a return interview.
Even if it doesn’t tell the full story, employers can tell a lot about a candidate from their credit score. Someone who struggles to pay their bills on time might not be perceived to be a reliable employee.
Of course, a job candidate could have a poor credit score due to circumstances out of their control. They likely need this job to help them raise their credit score and get their finances back on track. Regardless, do your best to keep your credit score high to avoid missing out on a job opportunity.
3. It Impacts Your Ability to Get a Phone Contract
Most people are aware that a bad credit score makes it difficult to take out a loan or qualify for a mortgage. Poor credit can even disqualify you from being accepted as a rental tenant. What you may not be aware of is the fact that your credit score can directly impact your ability to sign a phone service contract.
Since a phone bill is just like any other bill, many phone companies will look for users with good credit scores. These consumers have built a reputation for themselves as reliable customers. The phone company knows it can rely on them to pay on time.
Just like there are credit builder cards for those with bad credit, there are options to keep you connected even with poor credit. Look for deals that bypass credit checks. Also, look for those with a trial period. This will help you prove yourself as a consumer for the first few months of your contract.
4. It Can Strain Relationships
According to a 2018 Ramsay Solutions study, financial problems are the second leading cause of divorce, trailing only infidelity. A bad credit score can certainly strain your relationships, especially if you make no effort to improve it. Few things can cause more stress and contention than money problems.
For example, a young couple might dream of buying their own home and starting a family. With bad credit, this goal is much more difficult to obtain. The stress of trying to achieve career and personal aspirations can create tension in a relationship that otherwise wouldn’t exist.
Of course, so much more goes into relationships than financial status. Prioritize kindness, intimacy, and selfless service with your own significant other. Just be aware that the circumstances presented by financial struggles can introduce variables that can throw you for a loop.
5. It Raises Your Insurance Costs
Another recent study should shock you even more. Research from The Zebra showed that consumers with poor credit paid twice as much for car insurance than individuals with good credit scores. That could amount to $1,000 more per year spent on insurance than someone with an identical driving record but a better credit score.
This is because people with poor credit are more likely to receive the blame in an accident, as unfair as that may seem. It also falls under the rule that companies charge higher rates to consumers with a history of missing payments. The same study showed that moving up even one credit tier can net you 17% in savings compared to your current tier.
6. It Opens the Door to Debt Collectors
Have you gotten any messages from debt collectors recently? This may simply be because of a bad credit score. Debt collectors that work with credit card companies will contact people with low scores because they typically owe money from past debts.
Getting a call from a debt collector is never fun. It may mean you owe more than you can pay due to poor financial habits. It could also mean you’ve forgotten about some bills and need to play catch up. Avoid confronting the debt collectors by keeping debt in check and your credit score at an acceptable level.
You can improve your credit score by making all of your payments on time from here on out. Lower your credit utilization and remove any unnecessary debt, especially any you’ve accumulated from credit cards. Put in that work and you won’t have to worry about the effects of bad credit any longer.