5 Ways Poor Credit Can Cost You

Your credit is one of the most important aspects of your finances. Your credit situation can mean savings — or costs. In fact, poor credit can cost you significantly. And the costs aren’t always in terms of money. While the most obvious costs of poor credit are financial, you also have to watch out for some of the other costs of bad credit.

Here are 5 ways that poor credit can cost you, financially and in other ways:

1. Pay More In Interest

Anytime you borrow money, you are required to pay interest. When someone lends you money, the goal is to earn, and that means that they charge you an interest rate. However, the interest you are charged is usually based on your credit rating.

Poor credit means that you present a bigger risk of not repaying the loan. The lender could lose some of the money it has put up. In order to mitigate some of that risk, you are charged a higher interest rate if you have poor credit. On a short-term loan of two or three years, the extra you pay might amount to a few hundred dollars. For long-term loans, though, like home loans, you could pay tens of thousands of dollars extra because of your poor credit.

2. Higher Insurance Premiums

In some cases, you might pay higher insurance premiums because of your low credit. Some studies link poor credit to other risky behaviors, such as car accidents. Your low credit could, in some instances, result in a higher insurance premium. This means that you could very well pay an extra $20 to $75 each month because of your poor credit. Over time, that can add up to quite a lot.

3. Inability to Access Some Products and Services

Your poor credit might actually cost you in terms of opportunities to get products and services. If your credit is poor enough, you might not qualify for a cell phone service. You might want a specific credit card to help you get back on track or ease your cash flow, but you might not qualify because of your poor credit.

In some cases, a bank will check your credit before allowing you to open an account. If you have poor credit, you might be denied a checking account or a savings account. You might have to use costlier services, such as check-cashing services, or prepaid debit cards. These can lead to fees that can cost you more than $100 a year. Over time, that adds up and your poor credit can mean that you are stuck in a financial services rut that is hard to get out of.

4. You Might Not Get Certain Jobs

Your credit history might be used as part of a background check for certain jobs. If you are applying for a job that involves access to sensitive information, or requires financial knowledge, your bad credit can be a hindrance. An employer might worry that you can be bribed to share sensitive information or participate in corporate sabotage. In some cases, there might be a concern about embezzlement. In any case, your financial situation could raise red flags with some employers and cost you a higher-paying job or a promotion.

While employers aren’t supposed to check your credit score, the story that your report tells might be enough to cost you a good job. This can be frustrating, especially if you are otherwise qualified.

5. Your Relationships Can Suffer

 More on Bad Credit

• What Your Credit Score Says About You
• Build Your Credit Score Faster
• Relationships: Is Bad Credit a Deal Breaker for You?

In many cases, the things that come with poor credit — or that cause poor credit — add stress to your life. When you have a lot of debt and poor credit, and when you are worried about your financial situation and all the extra costs you are paying, it’s hard to maintain healthy relationships. Your stress and anxiety can make you irritable, and you might be reluctant to share the full extent of the situation with a significant other.

In these cases, relationships suffer. Whether you yell at your kids more, or keep secrets from your spouse, it’s not healthy for your relationship. Your mental and emotional health can also deteriorate as a result of the stress related to poor credit. If you aren’t careful, you could end up with costs that are even greater than the financial.

source: financialhighway.com

Bad Credit Effects Go Beyond Your Finances

When we think of bad credit, many of us think about the ways that bad credit can harm our chances at getting a loan. Bad credit can lead to higher interest rates, which can cost more money in the long run. Part of borrowing smart is making sure that you have good credit so that you pay the lowest possible interest charges.

However, paying more money for your loan is not the only way that bad credit can hurt you. Poor credit can harm you in other ways — including causing you problems in your personal life.



Emotional Stress

 

In many cases part of the reason consumers have bad credit is due to their high levels of debt. Your credit score suffers when you have high credit utilization. If your credit cards are maxed out, it can weigh on your credit score.


The poor credit score isn’t your only problem. When you have that much debt, it places emotional stress on you. This emotional stress can affect your mental and physical health at home. Emotional stress can cause anxiety and depression, and lead to difficulty in your personal life.

When you are stressed about money, as evidenced by your bad credit, it becomes difficult to effectively manage your emotional state — much less enjoy financial security.

Relationship Problems

 

Your bad credit can also prompt relationship problems. Money problems can lead to fights about money, and place strain on relationships. Disagreements about how to tackle the bad credit situation, and the bad debt situation, can lead to difficulty in your romantic relationship.

However, bad credit can also affect other relationships as well. Your stress and anxiety regarding money can lead to you having less patience with your children, and with other people in your life. You might be embarrassed to participate in activities with others, or afraid that they will learn about your credit problems. If this is the case, it can cause strain in your other relationships, and lead to problems relating.

Trouble Finding Housing

 

Another difficulty that can come from poor credit is difficulty finding housing. If you rent, some landlords will check your credit before approving you. This can mean that you don’t qualify to live in the apartment or house that you are interested in.

In some cases, you might be required to pay a larger security deposit, or pay first and last month’s rent — even if someone else who doesn’t have bad credit wouldn’t have to pay such a large amount of money up front.

Having bad credit can limit your opotions and result in you not being able to live where you want. If you can’t afford the larger security deposit, or if you are denied altogether, you might be forced to live somewhere you don’t want to. This can be a disappointing state of affairs — especially if the results mean that you are farther from amenities you are looking for or if your children won’t be in your preferred school district.

Passed Over for a Job

 

No, an employer isn’t supposed to look at your credit score when making a decision about whether or not to hire you. However, an employer can look at your credit report; at least a version of your credit report is available for employer perusal.

If you have poor credit, and you are applying for a job where you might have access to proprietary information or if you are going to be working in security, an employer might worry that you are vulnerable to bribery or other issues. While you will have to give your permission for a potential employer to check your credit, withholding that permission might indicate that you do have something to hide.

With more and more employers using credit checks as part of the overall background check, having poor credit could hurt your long-term career prospects.

Bottom Line

 

Your credit doesn’t just affect your loan situation. Your personal life can be affected by poor credit, and it can also have far-reaching effects on your finances and life beyond just what happens with your debt. As a result, it’s vital that you work to improve your credit score.

 source: financialhighway.com