The FICO credit rating scale runs from 300 to 850 — with anything below a 579 earning a “poor” classification. As many people who’ve faced credit problems can attest, having a low score tends to make your life more difficult. Here are just six side effects of having a bad credit score.
#1: It’s Harder to Get an Apartment
Hoping to get approved for a new apartment? You can bet lenders will be considering your credit score when deciding whether to approve or deny your application. Some landlords and management companies even set a minimum credit threshold that applicants must meet to be eligible.
The reason landlords check your credit rating is that a history of late or missed payments can bode badly for the likelihood of you paying your rent on time. Applicants with a poor score may face outright rejections or may need a cosigner to secure a living space.#2: It’s Harder to Get Approved for Loans
It is usually possible to get a loan with poor credit, but it tends to be more difficult than if you were doing so with a higher score. Business Insider recommends checking with credit unions, as they may offer flexible terms for “riskier” borrowers.
Borrowers with bad credit may need to secure an asset as collateral against a loan or get a co-signer to back them up. Both these options carry a certain amount of risk, so you’ll need to be absolutely sure you can follow through on repayment.
#3: You’ll Face Higher Interest Rates
When you do find a loan for which you’re eligible, you can expect to pay higher interest charges to offset the heightened risk of lending to a low-credit borrower.
Say you’re pursuing debt consolidation for bad credit, which entails taking out a loan to pay off all your credit cards at once. The loans you’re likely to qualify for will carry interest rates toward the upper end of the spectrum — often at or above 20 percent APR. To determine whether this strategy will actually save you money in the long run, you’ll need to compare your credit card interest rates against the loans for which you qualify based on credit (and other factors).
#4: Your Insurance Premiums Could Increase
According to Consumer Reports, policyholders with poor credit scores could pay up to $1,301 more in annual premiums on auto insurance than someone with great credit — even if both drivers had a blemish-free driving record.
Why? Low credit correlates to higher risk of filing an insurance claim in the eyes of insurers.
#5: You May Have to Pay a Deposit on Utilities
Another expense people with poor credit face is potentially having to put down a security deposit on utility accounts. This means electric, gas and water companies consider your credit score when you apply for services, like when you’re moving into a new apartment.
#6: You’ll Miss Out on Certain Credit Card Rewards
People open up new lines of credit for all kinds of reasons, not least of all the opportunity to earn tempting rewards on travel, eating out and general spending habits. But the crème de la crème of credit cards are usually reserved for those with strong credit histories — which means having poor credit could disqualify you from taking advantage of these perks.
As these side effects of bad credit illustrate, credit rating is capable of affecting both approval status and expense level. This is why it literally pays to do everything you can to strengthen your score — like building a consistent payment history, reducing the percentage of available credit you’re using, lengthening the average age of your accounts and more.