A bad credit history can make it difficult to borrow. Defects on your credit report – late or missed payments, or overdue accounts – can hurt your credit score, a factor lenders use to determine whether to extend credit to you. The lower your credit score, the more you are considered a risk. And the more risky a borrower you are, the more interest you will pay – if you can get a loan.
You could pay more for the insurance. Insurance companies take credit reports and credit scores into account when pricing auto and home insurance coverage, says John Ulzheimer, credit expert for Credit Sesame, a website that offers information and advice on credit and debt. Insurers generally offer discounts for those with high scores. If you don’t meet the insurer’s threshold (which varies from company to company), you will miss out on the right credit discount and pay higher rates accordingly. Worse yet, bad credit can lead to denial of coverage, says Ulzheimer.
Utility companies may require a deposit. Utilities won’t refuse services except in extreme situations, says Ulzheimer, but they can demand deposits. The decision to charge a deposit (or waive a deposit requirement) is largely based on the customer’s credit report, he says. Remember, utilities charge you for water, gas, electricity, and other services based on the actual amount used. They therefore need to be assured that you can pay for what you have already consumed.
You might have a hard time getting a cell phone. Wireless carriers will check your credit if you want to buy a cell phone with a service contract, says Gerri Detweiler, director of consumer education for Credit.com. If your score is low, it indicates that you have not handled credit well and therefore you may not be a reliable customer. So wireless carriers can charge you a deposit (or a higher deposit than they charge customers with better credit), she says. Or they can limit your options to the most basic service or a prepaid phone plan. You might run into a similar problem with cable TV and Internet providers, says Ulzheimer.
You could be turned down for a job. According to the Society for Human Resource Management, 47% of employers take credit history into account when making hiring decisions. Credit history isn’t the most important factor employers consider when deciding to hire someone, but they can play a role, according to the SHRM report. Employers who perform credit checks typically do so to reduce theft or other criminal activity. But nearly 20% of employers surveyed by SHRM said the main reason they review job applicants’ credit histories is to assess their overall reliability.
You might have a hard time finding a home. Property management companies screen potential tenants before handing over the keys to an apartment or house, says Ulzheimer. If your credit is low, you may need to pay a larger down payment. Or you could see your lease application turned down, he says. Homebuyers need a credit score of 740 or higher to get the best rates on a mortgage, Detweiler says. Not only will your rate be higher if your score is below 640, she says, but your loan options will be limited, which could put a home purchase out of reach.