How A Bad Credit Score Affects You | Bankrate (2024)

Key takeaways

  • If you fall into the bad credit category, you will have less favorable outcomes when it comes to getting loans to buy a house or car, or even getting opportunities in the rental and job markets.
  • Prospective lenders, landlords and employers, as well as others that you approach for credit, will see you as more at risk of defaulting and will charge you higher interest rates or deny you.
  • You don't have to live with a bad credit score and can proactively take steps to improve your score and your outcomes.

If you have bad credit, you might have more trouble taking out a credit card, car loan or mortgage — and if you do get accepted for a credit card or loan, you can expect to pay higher interest rates.

A FICO score of less than 669 would be considered a fair score and one below 579 is rated a poor score. If you want to get a mortgage loan to buy a house, for example, you should aim for at least a 620 score. If you do have a poor credit score, you could find yourself dealing with a variety of additional hardships on your financial journey.

What are the disadvantages of bad credit?

The effects of having a low credit score can reach fairly far and wide. The consequences of bad credit can even extend to your job search or apartment hunt. since both employers and landlords want to work with people who have a history of managing money responsibly, and your credit score is one way of showing that.

However, you don’t have to let bad credit keep you from achieving your long-term financial goals. Here, we’ll take a look at some of the main disadvantages of bad credit, as well as steps you might be able to take to avoid them.

You’ll get fewer credit card options and higher interest rates

Bad credit can make a real impact when shopping for a new credit card. You can find many credit cards or those with poor credit, but they won’t offer as many perks or benefits as cards available to those with higher credit scores. Interest rates on these cards can be extremely high — as high as 29 percent or more, or higher than the current average interest rate.

If you have a strong credit score, on the other hand, you’ll have plenty of solid credit card options available to you with lower interest rates and good cardholder perks (think: rewards, annual credit and other more premium benefits).

You might see higher insurance premiums

In general, credit scores are used to determine how likely you are to fall behind on your payments. For potential lenders, the lower your score is, the higher chance you are to miss a payment. When purchasing insurance, you have an insurance score that’s similar to a credit score (and based on much of the same information), but it also takes into account how likely you are to file a claim.

Although credit scores and credit-based insurance scores are slightly different, your insurance score is still affected by your credit history. This is because, like a credit score, it takes into account your:

  • Payment history
  • Outstanding debt
  • Credit history length
  • New credit requests
  • Credit mix

Typically, the higher your insurance score, the lower the rates on your policy will be.

Your car loan options could be more expensive

When it comes time to take out an auto loan, your credit history will play a role in whether you can get your hands on a loan, as well as the rates you’ll receive. If you have strong credit, you may be able to find auto loan offers with interest rates as low as 4.29 percent. On the flip side, if you have a low credit score, you may face interest rates as high as 20 percent.

You may pay higher mortgage rates

Mortgage lenders typically fear that applicants with poor credit histories are more likely to default on their mortgage. While there is no credit score threshold that automatically disqualifies borrowers from getting a home mortgage loan, having a low score can make it difficult to find a lender to underwrite your loan.

A credit score of at least 620 will make it easier to get a conventional mortgage loan. Even if you are able to secure a mortgage with a lower credit score, you’ll likely see significantly higher interest rates on your loan. Depending on your down payment, the cost of your home, your location and other factors, you could be looking at an average of about 8 percent with a score of 620 or lower, compared to about 6.5 percent with a score of above 760. This makes the overall cost of buying a home much higher.

You’ll face steeper apartment competition

Landlords can run credit checks on potential tenants during the application process, using them to gauge whether an applicant has a strong financial history and is likely to pay rent on time each month. Landlords can only see your credit report, not your specific credit score, and they’ll likely look at the payment history portion of a credit report. If it’s reported, they can see if an applicant has been evicted in the past, which is likely to affect their decision.

Not all landlords do credit checks, but large property management companies are more likely to require one. So if you have bad credit, renting from a landlord with a smaller portfolio may be more easily attainable. Having a lower credit score can also lead to a landlord requiring a larger upfront payment. Taking on a co-signer with a good credit history can give the landlord confidence they’ll receive rent each month.

You might have to provide security deposits for utilities

Your utility providers take your credit report — particularly, your payment history — into consideration when setting up your account. If you have a poor payment history, chances are you’ll need to provide the utility company with a deposit to get service.

Although the FTC outlines that utility companies requiring deposits must require them for either all new customers or none, many providers waive deposits as long as you meet their credit criteria. This means that the poorer your credit, the more likely you are to pay a deposit when setting up an account. Some utility providers may also accept a letter of guarantee, which is a letter from someone who agrees to pay your bill on your behalf if you can’t make the payment.

Your job applications could be flagged or even disregarded

One somewhat unexpected scenario in which your credit score plays a role is during a job search. Some employers review a candidate’s credit history during the application process as a way to gauge how reliable and responsible you are. Seeing patterns of late or missed payments or a history of defaulting on loans can be a red flag to potential employers that you won’t be a responsible, reliable employee.

You might face difficulty starting a business

Sometimes it takes money to make money. If you’re starting a business and need funds to make that happen, a low credit score can make it harder to be approved for a business loan or a business credit card at good rates. Even if you can get your hands on a business loan that accepts a low credit score, chances are you’ll receive a lower loan amount and higher interest rates than you’d get with a higher credit score.

The bottom line

While bad credit can make it harder to access credit cards, loans and mortgages — and might even affect your job prospects — there are plenty of ways to improve your credit history and build your credit score.

Start by making on-time payments on all of your current credit cards and begin paying down your old debt. Consider taking out a secured credit card or personal loan to build a positive credit history and increase the amount of credit available to you. Your credit score should improve as you continue to practice good credit habits and use credit responsibly.

How A Bad Credit Score Affects You | Bankrate (2024)

FAQs

How A Bad Credit Score Affects You | Bankrate? ›

If your score falls in the bad credit range, you will face less favorable outcomes with lenders (who may charge you higher interest rates), landlords (who could deny you housing) and maybe even prospective employers (who might reject you for a job).

How much does a bad credit score affect you? ›

The lower your credit score is, the more difficult it could be to get a mortgage, credit card, personal loan, overdraft or car finance. If an application is approved, you could be offered higher interest rates and a lower credit limit, based on the potential risk of offering you credit.

What are the consequences of a bad credit score? ›

Poor credit can make it harder to get car and home loans, and to qualify for a regular credit card—you may need to start off with a secured credit card to build your credit. Even if you are offered a loan, chances are it will be at a higher interest rate.

What does a credit score affect impact in your life? ›

Your credit score helps lenders determine your dependability and if you're likely to be able to pay a loan back. Your score not only impacts whether your loan application is approved, it also affects the interest rates and terms you receive when shopping around with different lenders.

Can you live with a bad credit score? ›

Life without credit isn't impossible. But you'll probably have an easier time if you start building up your credit now. (In the meantime, if you're considering a bad credit loan, you'll want to check out the OppU Guide to Bad Credit Loans here.)

Does bad credit ever go away? ›

Bad credit can last for up to 10 years, depending on the type of negative information in your credit profile. Most bad information falls off after seven years, like late payments.

Can you recover from a bad credit score? ›

This depends on how your credit was affected and the seriousness of your credit issues. If you've only had a few recent mistakes, you may be able to fix your credit in a few months, but if you've had a long history of missed payments and poor credit management, it could take years to see serious improvements.

Can you lose a job because of bad credit? ›

Even with just a copy of your credit report, employers will be able to get a pretty good idea of how you have managed your debts over time, even if they aren't given a single score to sum it all up. So if you have a bad credit score, your employment status could be at risk.

How to survive with bad credit? ›

The trick is to get into good habits while working with the resources you've got. Protect your score by paying your monthly bills on time and avoid charging more than you can afford. If you have a balance on your credit card, try to pay as much off as you can afford (ideally the whole balance).

How long does a poor credit rating last? ›

It can take a few months before new accounts help build your credit score, and late payments can stay on your profile for up to six years. However, their impact will likely start to reduce as time passes.

What is considered a very bad credit score? ›

What is a bad credit score? Well, there are several credit score ranges. For instance, 780–850 may be considered "excellent" while 720–780 may be seen as "good." But when it comes to a range that may be seen as bad, a score between 300 (the lowest) and 660 fits into the “poor” category.

What happens if you have horrible credit? ›

If you have bad credit, you might have more trouble taking out a credit card, car loan or mortgage — and if you do get accepted for a credit card or loan, you can expect to pay higher interest rates. A FICO score of less than 669 would be considered a fair score and one below 579 is rated a poor score.

How many points is a bad credit score? ›

A bad credit score may be one that falls into credit score ranges that FICO and VantageScore® consider poor or very poor. A poor FICO credit score might be considered less than 580. A poor VantageScore credit score might be 600 or less, with very poor scores being 499 or less.

Is 500 really bad credit score? ›

Your score falls within the range of scores, from 300 to 579, considered Very Poor. A 500 FICO® Score is significantly below the average credit score. Many lenders choose not to do business with borrowers whose scores fall in the Very Poor range, on grounds they have unfavorable credit.

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