Since credit may seem like “other people’s money,” some tend not to give it the attention it deserves. For instance, you may ignore paying your bills on time or max out your credit cards without giving it much thought. Late notices in the mail or constant calls from creditors may not affect you either.
While the way you handle credit is a personal choice, not handling it properly could affect you for several years down the road.
With that out of the way, let’s look at how poor credit can put a damper on your finances.
The Two Mistakes That Negatively Impact Your Credit Most
Before jumping into bad credit’s side effects, let’s discuss what can lead to poor credit in the first place.
Failing to make payments on time is the first significant factor. Budgeting or setting up alerts and reminders could help you here.
How much debt you carry is the second major factor. While having tons of available credit is fine, you should avoid maxing out your cards. Doing so may show creditors that your finances or shaky and that you pose a considerable financial risk.
Late payments or carrying loads of debt can make your credit score plummet. If it does, here’s what can happen.
Problems That Arise from Poor Credit
1. Issues getting an apartment
Credit checks by landlords could set off red flags. Even if a landlord accepts you as a tenant, a lower credit score could result in a higher security deposit.
2. Difficulty finding work
Many jobs in the financial industry require a good credit history. While employers may not care so much about your actual score, they could look for red flags on your credit report. Red flags include outstanding bills, bankruptcy, or large amounts of debt.
3. Problems buying a car
The lower your credit score, the higher the interest rate you’ll pay. This will increase the cost of your car over time due to a higher monthly payment. You could also get denied financing altogether.
4. More expensive credit cards and loans
While you may get approved for financing, most credit cards or loans you receive could be costlier than if you had a higher score. In short, everything becomes more expensive.
Creditors charge you higher interest rates since they assume more risk. If the risk is too high, however, they may deny your application, which could limit your options in terms of housing, transportation, and more.
5. Prepaid phones may be your only option
A cell phone company will check your credit before tying you to a contract. If rejected, a prepaid phone may be necessary.
Taking the prepaid route can be more expensive per month, and it could keep you from having higher-end phones at a lower cost.
6. Paying more for insurance
Risk plays a massive role in any insurance. For this reason, insurance companies check credit. A lower score could mean a higher risk, which could result in higher insurance premiums.
7. Harassment from debt collectors
Go too long without paying a bill, and debt collectors could come calling. There are legal ways to reduce this annoyance, but they won’t make that outstanding debt and its adverse side effects disappear.