All the Ways Bad Credit Can Make Your Life Difficult
Anyone with bad credit knows this can be a huge headache. Of course, it doesn’t seem to affect your daily life too much. But when it comes time to buy a car or fill out a rental application, that crappy credit rating starts haunting you again. Here are some of the disadvantages of bad credit and what you can do about it.
Your cable TV, telephone and Internet bills may be higher
If your credit is low, don’t be surprised if your cable, Internet or mobile phone bill comes with an extra charge. We told you before: Service providers are allowed to charge you more for bad credit . This is called “risk-based pricing” and is completely legal in the FTC’s opinion. The FTC reported :
When you apply for things like cable or satellite TV, mobile phone services, or internet services, the company can check your credit report. They may use information from your credit report to provide you with less favorable terms, meaning they may charge you more for a service than anyone with a better credit history. This is called risk-based pricing. The law says it’s okay for a company to let you know by sending you a risk-based pricing notice.
The company is required by law to send you a Risk Based Pricing Notice. Sprint recently had issues with not shipping it after charging customers with bad credit an extra $ 7.99 a month.
You will want to check your monthly bill or even call your service provider to see if you are paying extra. Then go through your credit report ( which you should do anyway ) and first find out why you have such a low score. If there are errors, write a letter to the credit bureau challenging them . If that doesn’t work, there is little you can do to get rid of this commission other than improving your credit.
You will pay a higher insurance premium
Your insurance premiums may also be slightly higher due to your bad credit history. The National Association of Insurance Commissioners (NAIC) explains that carriers in most states check your credit to calculate the rate . Since your creditworthiness is not stellar, these companies consider you to be risky. They fear you won’t pay, so they hedge their bets by charging you more.
The NAIC claims that these companies actually check your “credit insurance score”. It is more or less similar to your regular credit rating, but in their opinion it is composed of fewer factors. Here’s what’s included in your credit-based insurance rating:
Payment History (40%) – How well you have paid off outstanding debt in the past.
Outstanding Debt (30%) – How much debt do you currently have
Credit history length (15%) – How long did you have a line of credit
Chasing a new line of credit (10%) – if you recently applied for a new line of credit
Credit Mix (5%) – The types of loans you have (credit card, mortgage, car loans, etc.)
Unfortunately, if you want to improve that score, you will have to use the same methods to improve your usual score: keeping your debt levels low and paying your bills on time.
It will be difficult to apply for a mortgage
If your credit is really bad, it may be difficult for you to buy a home. It is difficult, but possible. Bankrate indicates that , that mortgage lenders are more lenient to the lowest estimates, especially if the applicants have proved that in the course of the year to make timely rent. Another viable option may be a loan of the Federal Housing Administration . According to US News , you can get an FHA loan with a rating of just 580, provided you have at least 3.5% of your down payment in cash. In some cases, you may even get a loan with a credit rating of 500, but expect to pay even more in advance.
However, even if you can get a loan, your interest rate will be much higher than someone with a good credit history. Check out this tool from FICO that shows the average mortgage interest rate based on your credit rating. It also compares the total interest paid over the life of the mortgage. You can see how rates vary by state, but in the screenshot below, I’ve set it to the national average. As you can see, a lower score will cost you tens of thousands over time:
Even a half percentage point can cost you nearly $ 30,000 more in the long run, so you might want to consider improving your credit before taking out a loan. Of course, mortgage rates are really low right now, so you need to consider the market as well, but your credit rating plays a big role too.
You will have a higher interest on other loans
High interest rates aren’t just limited to mortgages. If you are taking out a car loan or a personal loan, you can also expect rates above average.
If your credit is really bad, you may have to take out a subprime car loan (if you need to take a loan at all). A subprime loan is a special loan for borrowers with a weakened credit history, and according to Edmunds , your interest rate on a subprime loan can be as high as 18%, depending on the state.
Bankrate suggests trying to get a loan from your local credit union , which might be a little more lenient. They add that even your employer or insurance company can offer car loans. They also offer merchant loan terms and not just a monthly payment. You want to consider how much you pay overall over time:
Look for the cheapest money – the lowest annual interest in the shortest period. “Don’t be distracted by promises of lower monthly payments over a long period of time,” says Van Aelst. If the only way to pay off is with a long-term loan, you probably won’t be able to afford a car.
It’s worth noting that you should avoid financing dealerships if at all possible, because the rates are usually higher.
Credit card interest rates vary widely. According to Investopedia , they can be between 7 and 36 percent. If your credit score is poor, you can probably count on a rate of 22 percent or more, Investopedia reports.
Work to improve your rating , and when you notice that it is slightly higher, call your credit card company and follow this scenario to get a higher rating .
You may have problems renting an apartment
Renting an apartment can be a huge problem if your credit is low. Again, you are viewed as a risk and the landlord or landlord wants to make sure you can pay on time every month. Fortunately, there are several things you can do to improve your chances of getting the apartment you want. We’ve detailed these methods here , but there are several options:
- Provide a brief explanation : Add a statement to your credit report explaining any negative points.
- Ask for References : If this was the last time you made payments, ask previous homeowners to offer a reference letter stating this.
- Offer an incentive : Offer to move in immediately, post a larger security deposit, sign a short-term lease, or make a direct deposit from your bank .
Of course, joint signing is also an option , but not one that should be taken lightly. You might also consider looking for smaller independent owners who might want to work with you.
When it comes time to turn on the water or electricity, the utility company may ask you to post a bond if you have bad credit. If so, make sure you understand what happens to that money when you move. Most of the time, you’ll just get it back when you move, but you want to make sure that’s the case.
You may not get the job you want
Although the employer will not check your credit rating, they are legally allowed to view your credit report with written permission. Your credit score and your credit report are different. If your credit history sucks, they both will reflect that, but your score is a number and your report details your background.
However, this usually only matters if you are applying for a job that requires financial skills (such as a loan officer or bank teller) or a government job. Also, some states regulate employers’ access to this information. Credit.com reports :
This may sound unfair given that bad credit can arise from medical bills, layoffs, and other factors beyond your control, however there are several ways to restore your credit, and some states have passed laws restricting the use of credit information in the admission process. to work. … This is the case in California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington, according to the National Conference of State Legislatures.
To be on the safe side, check your credit report for errors or negative items. Then, discuss these areas with your hiring manager and tell them what steps you are taking to improve your creditworthiness.
Actually, this is what it all boils down to: improving your credit history. Get a free copy of your report , study it carefully , and then apply a few strategies to boost your bottom line. In any case, it is helpful to be aware of each of these shortcomings in order to be prepared for a problem to arise. While there are several workarounds for each of these problems, fixing the result is the best long-term solution.