A bad credit score has many negative repercussions. And here is why having a poor credit score will cost you a lot of money if you don’t do anything about it.
With a good credit score, you get to enjoy favorable interest rates, access to better loans, and even premium credit cards. Yet, the opposite is true about a poor credit score; having a negative score negatively impacts your life, even causing you to miss out on numerous money-making opportunities.
Consider these six ways how a poor credit score can cost you a lot of money:
To offer you some jobs or managerial positions, employers may need to ask about your credit score or check it during the evaluation process. After all, your potential employer wants to know if you can handle money well or make good financial decisions.
Examples of companies that run credit checks on their employees include law enforcement firms, government fields, and finance companies. By limiting your job opportunities, a bad credit score consequently lowers your earning potential for the long term.
This is the most obvious way that having a poor credit score costs you money. When you have bad credit, you tend to pay higher interest rates than those with good credit. And while you might manage to get credit cards for bad credit, these usually come with a higher APR, making it very expensive to carry balances.
Also, note that credit card companies tend to run credit checks on their customers occasionally. So if your credit score suddenly drops, you are more likely to increase your APR on any new charges you make.
Higher Insurance Costs
Most people don’t realize that poor credit scores go hand-in-hand with high insurance costs. Most drivers tend to file accident claims via their auto insurance carrier. Therefore, having a poor credit score increases your odds of being at fault in case of an accident.
In fact, the State of Auto Insurance Report written by The Zebra in 2019 showed that drivers with poor credit scores paid more than double the insurance costs of those with good scores. On the contrary, those who had increased their score by just a single tier saved about 17% on their insurance premium.
A low credit score also limits your ability to open accounts with different utility companies. This is because most of these companies check their customers’ credit scores before setting up an account for them.
If you don’t meet the set minimum requirements, such as a target credit score, the utility firm may require you to pay a deposit to set up the service. While the deposit acts as insurance for when you fail to pay, it only works to cost you more money.
Getting approved for a traditional (or bank) loan is difficult if your credit score is low. Regardless of whether you have an emergency, need a personal loan, or are simply looking to get a new credit card, it will be hard for you to get these loans from reputable lenders.
Limited access to financing may even force you to opt for high-risk financings, such as payday loans. Unfortunately, these expensive financing sources usually come with unfavorable terms and high-interest loans, trapping the victims in a cycle of debt.
Getting an FHA mortgage is not a big deal if you have a good credit score. On the contrary, having a poor credit score makes it much more challenging to buy a house, especially since you’ll be required to provide a larger down payment.
However, a poor credit score doesn’t just limit your ability to buy a home; it also impacts your renting options. Like banks look into your credit scores to determine if you are worthy of a mortgage, most landlords also consider your ability to pay rent on time before handing you the house keys. So it is no wonder that some landlords even ask for the credit report of their clients during the application process.
Indeed, having a poor credit score can have more consequences than you think; it limits your loan options, increases your interest rates, makes it harder to find housing, and even costs you a good job.
Therefore, if you haven’t checked your credit report, it is high time you did and put a plan to improve it. In the meantime, you can always get credit cards for bad credit to help you through your financial strain until you recover.