Consequences of Having Bad Credit

Posted in Credit • September 27, 2010

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We all know that your credit score is used to determine if you get accepted for a credit card. Did you know that it has ramifications far beyond mere credit cards?

Credit Scores and Loans

With credit cards, your credit score will largely determine whether or not you get accepted. To a lesser degree, it may determine your credit limit, but largely you either get the card or you don’t.

Those with excellent credit have the best pick of the credit cards available in the market. The get lower rates, better perks like introductory APRs, etc. However, those with bad credit face a different proposition altogether. Credit cards for bad credit come with lots of fees that you do not see with regular credit cards like application and processing fees.

Basically, these are just fees to get money from you (but to also protect the issuer for taking the risk to issue to those with bad credit). You might have to resort to getting secured credit cards if your credit is really bad.

When it comes time to get a mortgage, it is not that simple. With a high credit score, you will qualify for the lowest rate loan. The lower your score, the higher your rate, so every little bit counts. The same is true with car loans.

Your Credit and Your Job

It is becoming increasingly common for employers to run a credit check on their employees as a condition of hire. While this practice might be justifiable for positions related to money or security, I find this to be a gross misuse of credit scores. Your credit information was compiled in order to help a prospective lender determine the likelihood that you will pay the money back. It was never intended to be an indicator of job performance.

Nevertheless, it is a reality that this practice remains legal and is growing. When you consider that job loss itself is a major cause of poor credit, this practice creates a terrible catch-22 for the unemployed.

Insurers Jump on the Bandwagon

As long as employers are abusing credit information, why not allow insurance companies to do the same? Somehow, they have decided that your credit information correlates with the likelihood that you will submit a claim. Whether or not this is correct or fair, they are doing it anyway. If you have poor credit, you might find yourself being charged higher rates for home and car insurance without even knowing it.

Law Enforcement?

I have seen many crime dramas where the first thing the detectives do is check out the suspect’s credit report. The idea is that if the crime is robbery, or money is the motive in a murder, the person who owes a lot of money is considered to have a motive.

I do not really have any background in law enforcement, so I don’t know if this actually happens in real life. Even on TV, this is just used to find potential suspects, not to actually convict anyone of anything. That said, it is interesting to consider if people with bad credit are more likely to be questioned by police for crimes that they were only vaguely connected to.

Cell Phones and Utilities

People with bad credit or low credit scores are finding it more and more difficult to set up accounts with utilities companies, and let’s face it, almost everyone has a cell phone nowadays.

It isn’t so much that the utilities and cell phone providers will outright turn you down because of bad credit. After all, everyone needs the electric company, but if your have credit problems or a bad credit history, be prepared to pay a hefty deposit fee to get your electricity turned on.

Although consumers who need cell phones have other options such as pay as you go phones to temporarily avoid large required deposits, unless you have a spouse or can put the utility bills in someone else’s name, you’re pretty much stuck with putting down a deposit fee.

Bad Credit and Bank Accounts

A bad credit score can also affect whether or not a bank or financial institution will even let you open a bank account. Debit cards, checking accounts and savings accounts are as much a necessity to life as utilities are and if your credit is too far in the dumps, you may find yourself looking for other means than your neighborhood credit union to hold your paychecks. There are online banks that are specific to those that have bad credit and may have a hard time opening an account elsewhere.

Many consumers with bad credit can live without credit cards and can even survive with alternatives such as secured and pay as you go cards. Unfortunately, there are areas that include services and products that are necessities to life that are affected by credit as well, where a bad credit score can make things a lot more difficult.

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