How Costly Is Bad Credit? Many Don’t Know

Your credit score is a whole lot more than just a three-digit number – it’s essentially the lifeblood to financial opportunity. You likely are already well aware of how a good credit score can get your loan application approved fast, can get you low interest rates on auto and mortgage loans, and essentially save you money in the long term. But there’s also likely a lot that you don’t know about just how far-reaching your credit score is.

With that being said, do you really know just how costly bad credit is? You should. Here’s a closer look:

The Steep Costs of Poor Credit

If your credit isn’t in good standing, you should start enacting some credit repair strategies today. Here’s a look at some of the consequences of poor credit that you likely aren’t aware of:

  • Cell Phone: When you’re upgrading your cell phone or moving onto any sort of cellular plan, the cell provider is almost certain to conduct a credit check. If your score is poor, your options could be limited. After all, a credit score is essentially an indication of how reliable a consumer you are. If your credit report cites regular missed payments, what’s to say you’ll be making all of your cell payments?
  • Rent: Most everybody knows that you need a good credit score to get approved for a mortgage loan, but a poor credit score can also impact your renting options as well.
  • Utility Deposits: Many utility companies require some sort of an upfront deposit from consumers. If you have poor credit, you’re likely to have to put more money toward this deposit than someone with good credit would.
  • Car Insurance: Many car insurance companies are now considering your credit score when it comes to calculating your insurance premiums. While driver history and driving experience is an important consideration when it comes to car insurance premiums, many companies have found that an individual’s credit score can also help gauge reliability when it comes to driving as well.

 

As you can see, your credit score has a more far-reaching impact than just loan approval and interest rates, which is why you need to take the steps to repair your credit now if you’re among the 40 million Americans with a score of less than 600. Start by making on time payments on all of your bills, then work to manage your debt. Pay off high interest loans and credit cards first, and do your best to keep your credit utilization ratio at or below 30 percent. By committing to credit repair, it’s not unusual to see improvement within a matter of months.

FICO Breakdown

Credit Score Misconceptions

When you start learning about your credit scores, it’s easy to get paranoid about the numbers. But, there are a lot of myths about actions that will affect your credit rating, whether negatively or positively. A few actions that you do not need to be worried about:

Pulling Your Own Credit

When you check your own credit, this is known as a “soft pull.” “Hard pulls” are what occur when a bank or another organization looks at your credit reports with the intent of granting you a new loan. Because each new loan we get can increase the exposure of other creditors, having recent hard pulls will have a short-term, but minor, negative effect. But, looking at your credit yourself does not count against you. In fact, looking at your own records frequently can help you identify errors and problems, leading to a higher credit score overall.

Visiting a Credit Counselor

Many people who are struggling with bad credit are afraid to visit a credit counselor because they fear it may add another ding to their credit. But, the counseling itself is never recorded on your credit record in any way.

Multiple Inquiries

If you are shopping for a mortgage, creditors expect to see several pulls within a short period of time. All this indicates is that you are comparing offers, and it will generally be considered a single inquiry. If you are looking at new and different credit offers every few months, on the other hand, it can look like you are at risk of overextending yourself. Recent credit inquiries only make up about 10% of your score, so, even if an inquiry brings your score down, the effect is minimal and temporary.

Carrying a Balance on Your Cards

Many people believe that they need to carry a small balance month to month on their cards to improve their credit scores. This is not the case at all; carrying a small balance just results in paying interest. Other people feel that any balance at all can hurt your rating. However, a balance between 10 and 30 percent of your available credit is considered in the healthy zone and will not harm your score.

Not Using Your Cards

Many people believe that you need to use all cards regularly for them to count toward your credit score. While a card company may close a credit line that hasn’t been used in a long time, you don’t need to keep a card in constant use. Charging items a few times a year and paying in full is sufficient to keep a card active. We recommend setting up automatic charges and payments on infrequently used cards only to simplify the process of keeping them in use.

Knowing what can and can’t hurt your score gives you a leg up in the credit game. Educate yourself and keep an eye on your records to keep your score high and get access to the best financial opportunities.