Surprising Things People With Bad Credit Have in Common


Credit affects every facet of your finances — from the loan rates you receive to the credit cards you own. And while not everybody with poor credit practices the same habits or are necessarily underpaid, there can be some commonalities. talked to some financial experts to get their thoughts on some of the habits and mindsets people with poor credit might have. Check this list to see if you’re guilty of any of them.

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1. Living Paycheck to Paycheck

“One trait that people with bad credit have in common is that they live paycheck to paycheck,” said Kirk Chisholm, financial advisor with Innovative Advisory Group. “This actually applies to a large portion of the population. However, when you are cutting your expenses this close with very little room for error, you are bound to miss a payment or two.

“If someone does not have the discipline to save for a rainy day,” he continued, “then they are probably also not disciplined enough to pay all their bills on time.”

Living paycheck to paycheck can also be indicative of excess spending. Whether you’ve made a habit of eating out for lunch every day or have an unfortunate Amazon addiction, your spending could be making it harder each month to squeeze by after bills are paid.

Read: 5 Steps to Stop Living Paycheck to Paycheck

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2. Buying Depreciating and Non-Productive Assets

“One characteristic of people with bad credit is that they buy non-productive and depreciating assets with credit,” said Chisholm. “An example of non-productive assets is using your credit card to buy a purse or tickets to a concert. An example of a depreciating asset is buying a car on credit.”

Chisholm added that, if you finance the entire purchase of a car, the moment you drive off the lot, you’ll owe more on the car than it is worth. Although owning a car might be a necessity for some commuters, knowing when to buy new and when to buy used — and learning to skimp on all the bells and whistles — can make a world of difference when you’re making car payments.

Moreover, a habit of buying into the latest gadgets, like the iPhone 7, fashion trends and car models could be indicative of irresponsible spending on your part and overall poor money management.

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3. Lost Income From a Medical Situation

“People with bad credit often demonstrate several traits that put their future income at risk: They are geographically unlucky, overconfident, naïve and shortsighted,” said Kevin Haney of A.S.K. Benefit Solutions.

Haney said only five states — California, Hawaii, New Jersey, New York and Rhode Island — have state-mandated short-term disability programs. Moreover, he said, people have a habit of thinking bad things only happen to other people.

“One in three people will suffer a disabling accident or illness at some point in their lifetime. The odds are actually very high, especially for women having children,” he said.

Haney added that people also put a lot of trust in the government to “take care of them if they suffer a temporary disability. This is true only in five states. They also think they can purchase a private short-term disability policy after they become sick or have an accident. Private policies exclude preexisting conditions for 12 months.”

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4. No Backup Plan

Devin Carroll, financial advisor and founder of, said, “Most of the individuals I’ve come into contact with who have serious marks on their credit will trace it back to one specific event. Maybe a sickness, death, divorce or another big life event.

“If they stop and go back further, though,” Carroll continued, “it becomes apparent that the habits prior to the ‘big event’ were the real causative factor. In many of these cases, these individuals were living at the top of their earnings potential. When something went wrong, they had little in savings and no way to generate additional income.”

In other words, people stuck with poor credit could have gotten caught in a sticky situation — with no contingency plan.

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5. Owe Back Taxes

Clint Haynes, Kansas City financial planner and president of NextGen Wealth, said, “The biggest surprise I have seen in working with individuals who don’t have a great credit history is the amount of back taxes they have unpaid. While it may seem common sense to those with good credit to pay their taxes, when you’re struggling to make minimum payments, you have to make sacrifices somewhere.”

He added, “Because of the extreme negative impact a tax lien can have on your credit report (up to 15 years), I would highly suggest payment sacrifices be made elsewhere or, at the very least, to seek the opinion of a credit repair professional.”

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6. Uneducated on the Value of Good Credit

Jim Wang, founder of Wallet Hacks, said, “One common trait is a lack of knowledge about why your credit is important. People know it’s used for loans and credit cards and if they don’t think they’re getting a loan, they often don’t care.”

But your credit score can block you from landing a lease on your choice home, or even bar you from getting a cellphone contract. For some people, however, they simply don’t know about their bad credit.

Hank Coleman of Money Q&A said, “I think that one trait most people with bad credit have is that they don’t know that they have bad credit, or they don’t know just how bad it is. They like to stick their heads in the sand and ignore the problem. [They] don’t check their credit reports for errors, and they don’t typically know what factors go into their credit score calculations by the credit bureaus.”

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7. Practice Retail Therapy

Scottsdale, Ariz., financial advisor Charles Scott said retail therapy is another habit people with poor credit might practice.

“Retail therapy can be fun at the time you’re doing it, but it’s almost always linked to buying something you ‘want’ and not anything you really ‘need,'” he said. “The same thing goes for impulse buying. There may seem to be a good reason for charging these items, but perhaps the underlying causes should be explored. But, then again, people with bad financial habits don’t do this.”

On this point, Rick Chen of Credit Karma shared findings from a recent study:

“People with the lowest credit scores were nearly twice as likely (35 percent) to say that spending money helps them to relax than those with excellent credit (18 percent),” he said. At the same time, however, “those with lower credit were also more than twice as likely (19 percent) to say that saving money was painful, compared to those with the highest credit ratings (9 percent).”

So, maybe a little retail therapy from time to time really can hurt.

Up Next: 10 States Most (and Least) Likely to Live Paycheck to Paycheck