You probably already know your credit scores carry a tremendous amount of weight anytime you want to borrow money. Good credit scores mean you will likely have an easier time qualifying for a loan, like a mortgage or auto loans. Great credit scores also generally equal a better deal on financing. And, of course, bad credit scores can mean the opposite of all of that.
The influence of your credit scores, and the credit report data that underlies your credit scores, can have an equally profound impact on other “non-lending” areas of your life. What are the consequences of bad credit? Here’s what a low credit score can lead to.
Getting an Apartment with Bad Credit
Have you ever filled out an application to rent an apartment or a house? If so, you most likely consented to some sort of a credit check as part of the process. When you have lower credit scores, renting a place to live can often be quite challenging. After all, lower scores mean you’re less likely to pay your rent on time.
Sometimes “lower” credit scores might mean slightly lower than the national average. Consider this story of Jody Hill, a landlord and condo owner who couldn’t rent out her condo because an interested tenant didn’t have a credit score of at least 700. Hill’s condo association rejected a couple she had approved to rent her property because of their 695 credit score. So while a lower score generally means you can’t find a place to rent, it can also restrict your ability to rent out your own property.
Does Your Credit Score Affect Insurance Rates?
You’re required to have auto insurance if you drive a car. That’s the law in every single state. And, if you have a mortgage loan, the lender requires that you have homeowners insurance to protect the property. You might be surprised to learn that credit scores can impact the insurance premiums you pay in many states. Your credit scores, in fact, could potentially have more influence over your auto insurance premiums than even your driving record.
Insurance companies use credit scores just like lenders use credit scores: to predict risk. In the case of an insurance provider, it wants to predict the risk that you will file a claim that will cost the company money. And before you get angry about this, there is a clear and demonstrable correlation between your credit scores and likelihood that you will file an insurance claim.
The opposite is true as well. If you work hard to earn good credit scores, you might save money on your insurance premiums and have more options when it comes time to shop for coverage.
Getting Utilities with Bad Credit
Companies that provide services will also commonly check the credit reports and scores of new applicants. These service providers often perform credit checks to determine whether or not to charge you a deposit and, if so, how much. This includes utility-type services like power, natural gas, water and others.
And while you likely have a right to the aforementioned public utility services, you don’t have the right to cable, Internet or the pay television services. You have to earn those, just like you have to earn loans and credit cards. If your credit scores are lousy, you can be denied these utility-style services or, alternatively, receive a counteroffer for a lesser-quality alternative.
Can You Be Denied a Job Because of Bad Credit?
It’s worth pointing out that employers can still check your credit reports as part of their pre-employment screening processes. This is still fully legal at the national level, although some states have restricted the practice somewhat. This is the source of a common myth, which is that your credit scores can be seen and used by employers. This is incorrect.
Your credit reports, not your scores, can be used by employers. I think the reason this myth still exists today is because sometimes people use the terms “credit report” and “credit score” interchangeably as if they were the same thing. So, while your scores cannot be used by employers, your credit reports likely can be used.