Is Bad Credit Contagious?

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Could the company you keep have a negative effect on your financial health?

Credit is important, but you already know that. As a person who is alive and kicking in the year 2018, you’re likely well aware of the necessity of having a good credit score. After all, having bad credit can make it pretty difficult to get a credit card, a loan, or even an apartment.

Because of this, most people have a general sense of what to do to keep their credit in the black—they can make sure to pay off their credit cards every month, make sure they stay up-to-date on all their bills, and stick to a budget so they don’t spend beyond their means.

This sounds simple enough, but it can be much harder in practice. And what if something else is holding you back from fixing your bad credit? What if the people you surround yourself with are a part of the problem? Like that killer flu we’ve been dealing with all winter, could bad credit actually be contagious?

If your friends are spending their cash like there’s no tomorrow, pressuring you to go out to expensive dinners, take lavish vacations, and buy the latest designer clothes, you may be much more willing to sacrifice the health of your credit to keep up with the Joneses.

We’re sure your friends are great but are they really worth getting stuck visiting sketchy storefronts for a no credit check loan or shopping for payday loans online? Yeah, we thought not.


Social effects are real, but they aren’t the leading cause of bad credit. 

We talked to Certified Money Coach Amber Berry (@feelgudfinances), to see whether the poor financial habits of your friends and family can rub off on you.

“If your social circle tends to have irresponsible spending habits, makes poorly informed financial decisions, and you all rely on each other for financial advice, then it can quickly become a case of the blind leading the blind,” said Berry.

“However, there are many Americans who have poor credit due to situations beyond their control like medical debt and unemployment complications. These kinds of situations don’t necessarily indicate irresponsibility.”

Berry has a point. We recently wrote about the myth that medical debt goes away after seven years (spoiler alert: it doesn’t!), and in our research for that piece, we came across a startling statistic: Medical debt is the number one reason Americans file for bankruptcy.

We repeat: Medical debt is the leading cause of bankruptcy in the U.S.

According to a 2013 report from CNBC: “Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year—making health care the No. 1 cause of such filings, and outpacing bankruptcies due to credit-card bills or unpaid mortgages, according to new data. And even having health insurance doesn’t buffer consumers against financial hardship.”

That’s right. The number one reason U.S. residents declare bankruptcy isn’t a result of poor financial planning. It’s not because they maxed out their credit cards, bought cars they couldn’t afford, or got caught in a debt cycle from predatory bad credit loans. It’s because they got sick or had a car accident. It’s because their son had a serious disease or there was some other disaster. Many people with bad credit didn’t do anything to deserve that docked score.

Feel pressured to spend too much? Then set some healthy boundaries.

However, while there are many people out there with bad credit that’s beyond their control, others DO have a choice. If your friends and family are irresponsible spenders who put pressure on you to do the same, Berry thinks you may be better off separating yourself and your money from situations where you might be pressured into reckless financial decisions.

“If your friends and family cannot respect or support your financial goals, it could be wise and beneficial to limit your interactions with them in certain circumstances if you find maintaining personal boundaries to be a challenge,” she said.

“Examples of situations to avoid could be going out to eat with certain people if you know they tend to expect you to pay, or politely declining invitations to events that are out of your budget. It’s okay to love people from afar!”

A spouse’s over-spending is even harder to guard against.

But what if the person closest to you in the world—your spouse—is the one in the credit dumps? What if you can’t distance yourself from that person because you live with and are currently raising a bunch of tiny humans with them?

We’ve written before about how your husband or wife’s credit score can affect yours, and while there’s no such thing as a joint or “married” credit score (meaning you don’t merge scores when you tie the knot), your spouse’s financial habits can definitely have an effect on your credit score if you two have combined finances.

For example, if you have a joint credit card, joint bank account, or a mortgage, if your spouse drops the ball, you could be the one left in a lurch. Your spouse’s tendency to rely on high-interest cash advances will reflect poorly on your as well.

Take the lead on practicing healthy financial habits.

So how can you encourage your hubby, mom or best friend to pick up the slack?

“Lead by example,” said Berry. “In the case of how you manage your finances, being open about your goals and exercising discipline when temptation arises allows others to witness your journey and be inspired along the way.”

For example, Berry said that if your goal is to pay down debt, you should give yourself an allowance in between paychecks.

“Let’s say a friend invites you to the amusement park this weekend but you don’t have enough allowance money to do that. Ask your friend if they’d be willing to support you by going another weekend after your next paycheck so you can afford to have a fun time and stick to your goals. You may find that they’re in a similar situation and you can support one another.”

To learn more about living with bad credit, check out these related posts and articles from OppLoans:

Do you think your friends’ spending habits have helped or hurt you? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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Contributors

Headshot (cropped)Amber Berry (@feelgudfinances) is the Certified Money Coach (CMC) ® and Certified Business Archetype Coach (CBAC)™ behind her personal finance blog FeelGoodFinances.com. She helps 9-to-5ers and entrepreneurs identify, understand, and transform their money behaviors. The Feel Good Finances community was created as a place to discuss money in a positive environment. Her work helps millennial women and beyond reach their goals and create lasting change in their personal and financial lives.

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.