If you're spending more than you make and charging it all to your credit cards, it's easy to get in financial trouble. You may have difficulty making your minimum monthly payments or you may miss a payment altogether, which can cause your credit score to plummet. The way you use your credit also can lower your credit rating. Having a poor credit score has negative consequences in many aspects of your life, some of which may surprise you.
Higher Interest Rates
The lower your FICO score, the higher the interest rate you may be charged by your credit card company or bank. A score below 600 indicates a higher credit risk to most lenders; they will charge you much higher rates or will turn down your application outright. Higher interest rates can translate to thousands of dollars in added interest you wouldn't have had to pay if your credit score was higher.
Difficulty Getting a Job
Most employers use background checks that include a credit report, and you could be turned down for a position based on your credit score even if you're a suitable candidate for an open position otherwise. A poor credit score gives a prospective employer reason to believe that you might mismanage your finances, might not be a responsible citizen or might be so overwhelmed in debt that you are unable to concentrate on your daily duties. Employers also have anecdotal reasons for concern about the risk of theft or embezzlement from employees in financial trouble.
Difficulty Renting or Getting Utilities in Your Name
Without a good credit score, an apartment lease agent may deny you a rental contract. Poor credit may be an indicator that you will not pay your rent in a timely manner. Utility companies, including gas, electric and cable TV may require a large deposit from you in order to turn your utilities on if your credit score is low.
Insurance Premiums Can Rise
If you are shopping around for auto or property insurance, insurance companies evaluate your credit report, legally weighing your financial health to set premiums. According to the Fair Credit Reporting Act (FCRA), insurance companies may look at your credit report without your consent to decide whether or not to issue or renew a policy, and what premium to charge you for your insurance.
How to Boost a Poor Credit Score
The FICO score is the most widely used method of scoring your credit. FICO scores range from 300 to 850, with the average consumer falling in the 600 to 700 range. You can boost your scores by always paying your bills on time, applying for credit infrequently and not maxing out your credit cards. The length of your credit history is important, too; the longer you pay on time on any given account, the better your score.
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