Bad credit scores affect more than just getting a loan or credit card
It’s practically a universal truth: having a low credit rating is bad. But what you might not realize is that a low credit score can affect more than just your finances. This can have far-reaching consequences, including limiting the lifestyle you are able to achieve and even straining your mental health.
Those with a credit score between 300 and 549 report that their bad credit history has impacted their housing, careers, relationships and even their ability to communicate. In fact, around 28% of people with poor credit say they can’t rent the apartment they want, while 22% were denied a cell phone plan, according to one. new Credit Sesame survey of 5,000 American adults.
About 14% of Credit Sesame respondents have what is considered a bad credit score less than 549. About 17% had a good score of 550 to 639, while 20% had a good score (ranging from 640 to 719) and 41% had excellent credit (720 to 850). FICO scores range from 300 to 850.
In the Credit Sesame survey, respondents with low credit tended to be young, female and not with a college education.
“I have a hard time paying the bills because everyday life is so expensive and I already work all the time,” said one respondent.
“It is expensive to have bad credit,” says Jay Moon, general manager of credit operations at Credit Sesame. Improve your credit score by just 35 points – from about a subprime score of 660 to a good score of 695 – can save you $ 301 per year in interest costs, according to an analysis by the doxo bill payment service.
But while a bad credit score can add more expense in the form of higher interest rates and other fees, Moon says the cost of bad credit is “much greater than the direct financial costs. “.
There are also long-term consequences: around 14% of the survey respondents with low credit scores say they missed at least one job opportunity because of their poor credit. And 10% say their low credit score has caused problems in their romantic relationships.
About half of people with scores between 300 and 549 can’t buy a home or qualify for a car loan. And 57% say they have to use cash or debit cards because they can’t get credit card approval.
The emotional and mental toll associated with a bad credit score should not be overlooked. About 79% of respondents with poor credit scores say the situation induces negative feelings, with worry (49%), shame (46%) and anger (30%) being the most common. More than half, 58%, believe that there are no fair credit options for them and about 43% say that in fact having a credit score hurts them a lot.
This is in stark contrast to those with good (scores between 640 and 719) or excellent credit (720+), generally stating that their scores make them feel proud, happy and good. In addition, 2 in 3 of these respondents felt that their scores were a fair and accurate reflection of their creditworthiness.
For those struggling with bad credit, Moon says there are steps you can take to address it. “You won’t just have to stay in a bad credit situation,” he says.
Instead, he recommends that the first step be to improve your knowledge about how credit scores work. Services like Credit Sesame and Credit Karma, but also many credit card companies, allow you to access and track your free credit score so you can find out how your spending habits can affect your score.
Not only do you need to educate yourself about your personal score and spending, but Moon says it’s important to pay attention to what’s going on in the industry as well. Earlier this year, for example, Congress and private lenders have rolled out a number of forbearance and deferral programs aimed at helping those financially affected by the Covid-19 pandemic. If you are struggling right now, Moon recommends taking benefit of these programs to make sure you can maintain a good, healthy credit rating.
Additionally, Moon recommends that people with lower scores pay attention to some of the upcoming innovations that could provide a much more complete picture of credit worthiness. Experian Boost, for example, allows consumers to link their monthly utility and telecommunications bills to get credit for full payments on time.
A good way to approach your credit score is to think of it as “fundamental” to your financial health and well-being, Moon says. Just like you would exercise and eat well to maintain your physical health, Moon says consumers need to take the right steps to control or even increase their credit score.