5 Consequences of Bad Credit You Haven't Considered

Bad Credit Consequences

As a young adult, you might give little attention to your credit score, and checking your credit report might be a far off thought. You may also think you have the rest of your life to be responsible, and that it’s okay to splurge and enjoy your money at this stage in your life. But regardless of your age, poor decisions with your credit and money can have long-term consequences. 

If you use credit irresponsibly – to the point where you can’t pay bills on time – you credit score may suffer. You probably know it’s harder to get a mortgage, auto loan and certain types of credit cards with bad credit. It’s easy to shrug off bad credit if you’re not applying for loans or credit cards in the near future. However, bad credit doesn’t just affect your ability to get financing; it can also impact other areas of your life.

See also: 4 Ways to Build or Rebuild Credit Without a Credit Card

If you don’t get a handle on your bad credit habits, you might encounter the following five issues.

1. You can’t rent an apartment or house

If you have bad credit, you may accept the fact that you’ll have to rent a home. But what you may not know is that many landlords are getting strict with renters. I did some digging in my local market, and if you have a bad credit history, landlords might penalize you with a higher security deposit. If you’re thinking about moving into a luxury apartment home, you may not qualify with bad credit. A landlord may only charge applicants with good credit a $200 or $250 security deposit, but someone with terrible credit may pay a security deposit up to two months’ rent. If your credit score is too low, the landlord might require a cosigner, at which time you may have to ask your folks for help.

2. It hurts your job prospects

You may think your credit history has nothing to do with your ability to do a certain job. Unfortunately, many employers feel otherwise. If you’re applying for your first job out of college or looking for new opportunities, your credit history carries weight depending on the nature of your job, and how high you climb the corporate ladder. From an employer’s standpoint, if they’re hiring someone who’ll be responsible for managing company funds, they want an applicant who’s also responsible in his personal life.

If you can’t manage your own personal finances or credit, employers may feel you’re not equipped to handle the company’s important affairs. If you’re in the running for a position, but the company learns you have terrible credit, they might hire an applicant with a better credit rating. 

3. You may pay a higher security deposit

If you have good credit, you can order utility services and pay nothing out-of-pocket. But if you have poor credit – which says you’re more likely to send in late payments – the utility company may require a security deposit based on your credit. For example, a young lady I know with terrible credit couldn’t get cable services unless she paid a $300 security deposit. 

4. You can’t get a cellphone contract

Most young adults can’t live without a cellphone. If you have good credit, you can walk into any cellphone provider store and get a service contract with little out-of-pocket cash. In most cases, the company only charges an activation fee, plus the cost of the phone under the contract. But if you have bad credit, you might have to pay a higher security deposit, which can be hundreds of dollars. Or the company may refuse to give you a contract, at which time your only option is a prepaid phone plan.

5. You’ll pay higher insurance premiums

Given the higher cost of living in most areas, the last thing you need is higher prices. But, unfortunately, many insurance companies check credit scores before issuing policies. They feel people with bad credit are more likely to skip payments or mail late payments. Since you’re more of a risk, some auto insurance companies charge bad credit customers higher premiums, which is a double whammy given how some auto insurers also charge higher premiums if you’re under 25.

See also: How to Get a Credit Card When You Have Low Income

Bad credit can complicate your financial life, but you can fix the situation. Your score won’t improve overnight. However, if you pay your bills on time, pay off debt and consistently manage your credit well, you can build a better score.