The Side Effects of Bad Credit

How Bad Credit Affects Your Life

As you're maxing out your credit cards and ignoring your bills, it might not dawn on you that your credit could be affected. Credit card payments and level of debt have the biggest impact on your credit score. Mess up in these areas and your credit score will plummet.

"What's the big deal with a low credit score," you might ask. Since so many businesses now judge you based on your credit score, having bad credit can make life extremely difficult​, from getting a job to getting a place to live. Here are some of the most common side-effects of bad credit.

High interest rates on your credit cards and loans

Woman looking at computer screen with credit card
© Caiaimage/Paul Viant / Creative RF / Getty

Creditors and lenders see applicants with bad credit as riskier than applicants with better credit scores. They make you pay for this risk by charging you a higher interest rate. Over time you’ll end up paying more in interest than you would if you have better credit and a better interest rate. The cost is higher with big credit card balances or major loans.

How Your Credit Score Influences Your Interest Rate

Credit and loan applications may not be approved

Because creditors and lenders think your bad credit is a risk, they might not want to lend to you at all. With bad credit, you may find that your applications are being denied.

Difficulty getting approved for an apartment

Who knew that landlords checked credit before allowing you to sign a lease? It’s true. Having bad credit can leave you homeless or close to it.

How to Rent With Bad Credit

Security deposits on utilities

Utility companies – electricity, phone, and cable – check your credit as part of the application process. If you have a bad credit history, you may have to pay a security deposit to establish service in your name, even if you’ve always paid your utility bills on time. The security deposit will be charged upfront before you can establish service in your name.

You can't get a cell phone contract

Yep, cell phone companies check your credit too. They contend that they’re extending a month of service to you, so they need to know how reliable your payments will be. If your credit’s bad, you may have to get a prepaid cell phone, a month-to-month contract where phones are typically more expensive, or go without one at all.

If you're leasing or making payments on your cell phone, your payments may be higher if you have bad credit.

You might get denied for employment

Certain jobs, especially those in upper management or the finance industry, require you to have a good credit history. You can actually be turned down for a job because of negative items on your credit report, especially high debt amounts, bankruptcy, or outstanding bills.

Note that employers check your credit report and not your credit score. They're not necessarily checking for bad credit, but for items that could affect your job performance.

Higher insurance premiums

Insurance companies check credit too. They argue that lower credit scores are linked to higher claims filed. Because of this theory, they check your credit and charge a higher premium to those with lower credit scores, regardless of the number of claims you’ve actually filed.

Bad Credit, Bad Driver

Calls from debt collectors

Bad credit itself doesn't lead to debt collection calls. However, chances are if you have bad credit you also have some past due bills that debt collectors are pursuing.

Stop Debt Collection Calls

Difficulty starting your own business

Many new businesses need banks loans to help fund their startup. A bad credit history can limit the amount you’re able to borrow to start a new business, even if you have the greatest idea and the data to prove it.

Difficulty purchasing a car

Banks check your credit before giving you a car loan. With bad credit, you might get denied or you might get approved with a high interest rate. Most of those “no credit check” car lots charge extremely high interest rates that make it difficult to make your monthly car payments.