What Are the Side Effects of Bad Credit?

A bad credit score can negatively affect your everyday life (and your personal financial outlook) in ways you wouldn’t expect.

Okay, so you have bad credit. Awesome.

Actually, no, wait. Not awesome. The opposite of awesome. Your credit score is one of the most important numbers in your life, and a poor credit score pretty much means entering a world of financial hurt.

And here’s the real kicker: You might think you know all the ways in which a bad credit score will screw with your finances. But in fact, the effects are way more widespread than that.

Here are five of the main side effects you’ll experience when you have lousy credit.

1. You’ll be stuck with much riskier loans. 

A bad credit score is going to shut you out from the kinds of personal loans offered by traditional lenders like banks. Heck, even a so-so credit score will oftentimes leave you high and dry. Instead, you’ll be stuck with bad credit loans and no credit check loans, which come with much higher interest rates than regular loans.

And when we say higher, we mean way higher. Your standard unsecured personal loan will have an Annual Percentage Rate (APR) anywhere from five to 36 percent. Your average payday loan, on the other hand, has an average APR of 391 percent. That’s over 10 times higher than the most expensive personal loan! The same goes for cash advances (which are basically payday loans using a different name) and title loans, which have an average APR of 300 percent.

Don’t get us wrong, the right bad credit loan can be a great financial solution when you’re dealing with surprise expenses. But many bad credit and no credit check loans also come with short terms and lump sum repayments that can make them incredibly difficult to pay back on time. That’s how borrowers end up getting stuck in a nasty cycle of debt. (If you want to skip that predatory debt cycle, consider taking out an amortizing bad credit installment loan.)

But having to resort to riskier and more expensive types of loans is one of the most obvious ways that a bad credit score can affect your finances. The next items on this list are a little more surprising.

2. You could have trouble renting an apartment. 

You might not know this, but potential lenders aren’t the only ones that look at your credit score or pull copies of your credit report. This practice is pretty much standard for potential landlords when they’re considering a person’s rental application.

After all, a history of things like delinquent accounts, repossessed cars, evictions, and late or missed rent payments all speak to whether or not you might be a good tenant and whether they’ll have to hound you every month to get your rent paid.

Apartment hunting with a lousy credit score will mean more rejections and requests for larger security deposits. If you’re in this situation, you should look for individual landlords over big rental companies, as they’ll be more likely to make exceptions.

Looking for less trendy neighborhoods, snagging yourself a co-signer, and offering to pay more than the requested amount up front are all ways to get an apartment despite your bad credit. And when in doubt, be honest and explain yourself, maybe even in an official letter of explanation. Potential landlords will respect that.

3. You could be stuck paying extra for utilities. 

Once you’ve paid double the normal deposit for that new apartment and you’ve got your move-in date set, it’ll be time to turn your attention to utilities like water, gas, electricity, internet, and (maybe) phone or cable. No problems here, right?

On the contrary, this is another area where your poor credit score will set you back. Utility contracts are a form of credit called “open accounts” where every month you have a certain amount of money that needs to be paid in full. And while these credit accounts don’t involve any interest, the utility company will still be interested in your credit score.

While a bank might simply turn you down based on your credit score, the utility company will probably just charge you higher rates. (Failure to pay, however, will indeed get your service shut off.) The utility company might even ask for a large up-front deposit—up to one-sixth the cost of your annual service—or a “letter of guarantee” before they’ll sign you up.

4. Your car insurance rates might go up. 

Here’s the funny thing about this bad credit side effect. While insurance companies won’t actually check your credit score when you apply with them, they will take the same information that appears on your credit reports and feed it through their own super-secret formula to create a “credit-based insurance score.”

The difference between this score and your regular credit score is that this score has a different goal in mind: It’s designed to determine how many claims you’ll file. The more claims you’ll file, the more money you are going to cost the insurance company. To offset that cost, they’ll then charge you higher rates.

The reason that insurance companies do this is fairly simple. According to a 2007 report from the Federal Trade Commission (FTC) titled Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, these scores work:

“Credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.”

So while bad credit might not directly translate to higher rates for your car insurance, a poor credit score is still a likely indicator that you’ll be paying more.

5. Your job application could end up in the trash. 

This is the rarest side effect of bad credit, but it’s one you should still be aware of. Bad credit could be the thing that prevents you from getting hired for a job—and, in some circumstances, it could even mean getting fired.

Some employers run pre-employment credit checks when hiring. While they don’t check your credit score, they will still get a copy of your credit report, which will contain all the information that led to your poor score. These checks need to be run with your permission, but refusing to give your permission could very well knock you out of the running.

While these credit checks could be used as a tie-breaker between two equally impressive candidates, they are also very common in positions and industries where handling large amounts of money is part of the job. It makes sense: A person who isn’t good with their own money probably shouldn’t be in charge of other people’s money.

Similarly, employers in many states can run credit checks on their employees. While you are much more likely to run into a credit check when you’re being hired for a position, you can certainly encounter one at a company you already work for—especially if you’re up for a promotion.

Unless, of course, you live in one of the many states where these practices are restricted. To learn more about the laws regarding employer credit checks in your state, check out this report from the alternative credit reporting agency Microbilt: State Laws Limiting Use of Credit Information For Employment.

As this blog post has demonstrated, having lousy credit sucks—perhaps in more ways than you anticipated! If you want to read about some ways you can improve your credit, check out these related posts from OppLoans:

What else do want you know about living with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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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.