5 Ways a Bad Credit Score Can Make Your Life Harder
Most people can get through most days of the year without needing to reference their exact credit scores. In fact, it can be easy to forget for periods of time that you have a credit score —a number falling between 300 and 850 gauging your payment history, credit utilization rate, mix of credit accounts and other factors.
Eventually, one way or another, you’ll come face-to-face with your credit score and its implications. And in these scenarios, you’ll find that a good credit score can make your life easier while a bad score can make it much harder.
Here are just five ways in which having a low credit score can complicate your life.
#1. Getting an Apartment
As CNBC reports, rental demand is soaring all around the U.S. This is even true as members of the millennial generation move into their “traditional home-buying” years; many find renting is more affordable and offers them more flexibility than taking on a mortgage.
So, getting an apartment can be competitive these days. You want to put your best foot forward anytime you submit an application. And one of the major factors landlords and management companies consider when approving or denying applications is your credit score. Why? Because credit score conveys your riskiness to lenders based on your payment history. Landlords want to fill their units with those tenants most likely to pay rent in a timely manner.
#2: Getting Approved for Loans
Of course, credit score is just a snapshot of your overall credit history. But you can be sure lenders will take a deep dive into your credit history before approving you for a loan.
In addition to your credit score, lenders will consider factors like:
*Your credit history, including outstanding debts, delinquent accounts, unpaid collections accounts, how many recent credit applications you’ve submitted, etc.
*Your debt-to-income ratio.
*Your liquid assets, like savings and stocks.
The good news is that it is possible to get approved for certain loans with bad credit. The downside is that it’ll cost you more to borrow money with poor credit than with good credit.
#3: Paying Higher Interest Rates
Loans cost more for borrowers with poor credit because lenders raise the interest rates. As the Consumer Financial Protection Bureau writes, “Higher scores reflect a better credit history and make you eligible for lower interest rates.” This can be true for mortgages as well as auto and personal loans.
While a few percentage points may not seem like a huge deal when you’re signing the loan paperwork, this amount can really add up over the course of years. This is why it’s worthwhile to rid your credit report of errors and do everything you can to bring your score up before applying.
#4. Security Deposits on Utilities
Before moving into your new apartment, you call utility companies one by one to get your new accounts set up. You try to submit a request to get gas and electricity turned on before your move-in day. But the company asks for a security deposit up front. What gives? Well, utility companies see customers with low credit scores as riskier, so they ask for a deposit to insure themselves against potential loss.
#5: Higher Insurance Premiums
Your credit score will come into play when you’re trying to get insurance, too — in the form of potentially higher premiums for lower scores. According to Edmunds, a study by the Federal Trade Commission “found that credit-based insurance scores are effective predictors of risk under automobile policies.” When insurance companies deem you a riskier customer, they may raise premiums to offset that risk.
As you can see, a bad credit score can simply make your life more challenging. You’ll be doing yourself a favor by learning what you can do to raise your score, then taking those actions over time.
