6 Ways Bad Credit Affects Your Life

How a person manages their money affects more than their bank account. It’s easy to ruin your credit in no time, sometimes without even realizing it. If that happens, you may find that many things in life are more difficult.

Bad Credit Makes It More Difficult to Get a Loan

The most obvious way bad credit can affect your life is when it comes to getting a loan. Loans are needed for many reasons, and can even be used to improve a person’s financial situation. But options are limited for people with a bad credit score.

Lenders are very picky in terms of who they lend money to and how much they lend. One of the first things they look at is a person’s credit score. This gives them an idea of how likely a person is to repay their debt. When you have a bad credit score, that is seen as a red flag and a loan application can be denied.

Easy cash loans are still possible when you need money for emergencies, but your selection of providers will be limited. Even credit cards, which are considered a type of loan, may be out of reach when you have a low credit score.

Bad Credit Will Cost You Money

If you are able to get a loan or credit card with bad credit there’s still another repercussion – higher interest rates. Because people with poor credit are seen as a bigger risk for lenders, they have to pay higher interest, which ultimately makes borrowing more expensive. Even a few tenths of a percentage can add up to thousands of dollars on a home mortgage loan.

Another factor is the down payment. Often times lenders will require a higher down payment on an auto or home loan if the applicant has poor credit.

Bad Credit Can Affect Where You Live

It’s clear that bad credit can keep you from getting a mortgage loan and owning a home of your own. But many people don’t realize bad credit can also impact where and what you can rent.

Today, most landlords and property managers run background checks on rental applicants. Part of that background check includes checking the applicant’s credit score. If the score is low, the landlord or property manager will be hesitant to approve the applicant because they are concerned about their ability to make payments on time. Some landlords and managers even have credit score minimum requirements.

If you have a number of late payments, delinquencies, bankruptcy or foreclosures on your credit report, finding a rental may prove difficult.

Bad Credit Can Cost You a Job

When you apply for a job you may think the hiring manager is just looking over your resume and contacting references. Sometimes that’s the case, but they may also check your credit score.

In many states, employers check credit reports to gauge a person’s responsibility level. Things like high amounts of debt and missed payments can also be seen as a risk of theft or fraud. If the job requires a security clearance or is finance-related, the concern is particularly high for these employers.

Bad Credit Can Cost You Your Relationship

A 2015 study from the Federal Reserve Board found that people with bad credit scores had a higher risk of divorce. Just a 93 point drop was enough to increase the likelihood by 30% in a previously stable relationship. Not surprising, considering the chronic financial and emotional strain of money mismanagement. This stress can quickly grow into resentment.

Bad Credit Makes Insurance More Expensive

When you buy an insurance policy, there’s a very good chance the insurer is going to check your credit before setting the premium rate. The National Association of Insurance Commissioners notes that 95% of auto insurers check a person’s credit when making policy decisions. And 85% of home insurers do the same.

Insurance companies are paying particular attention to the amount of debt you have and repayment history. If your score is low because of missed payments or debt-to-credit ratio they’ll probably increase the premium.

It’s never too late to improve your credit score. Even though it takes seven years for late payments, delinquencies, foreclosures, and bankruptcies to be removed, making your payments on time and reducing debt-to-credit ratio can begin improving your score much sooner.

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