This guest post is from Daniel Wesley. Daniel is the founder and CEO of CreditLoan.com, a website that educates consumers about various personal finance issues. Among some of the topics discussed are bad credit loans, credit cards, auto financing, and many other credit and financial help issues. Connect with Daniel on Twitter and Google+.
A few years ago, I took my grandmother to a wireless provider store to help her get her first cell phone. While we filled out the paperwork to set up an account, the store clerk ran a credit check on her, which came back with a rather unsavory number. We were informed that, because of her poor credit, she would be required to put down a $200 deposit, on top of the cost of the monthly contract and the phone purchase, in order to set up an account with their company.
That inconvenient encounter at the cell phone store was just another reminder that bad credit does not discriminate; it causes problems for a lot of people — even my sweet, old grandmother — in really unexpected ways.
You mean they check my credit?
Most people know about the common ways having a low credit score can complicate things — like making it difficult (or impossible) to secure a loan for a house or leaving you with outrageous bills to pay every month — yet most people would be surprised to learn the unexpected ways that a bad credit score can affect their daily lives, such as:
- Telecommunication services
As previously mentioned, your credit score will be a factor in determining what type of contract you qualify for when signing up with a wireless provider. If you have bad credit, you may either be required to put down a large deposit or be rejected altogether. Likewise, cable, satellite and Internet service providers may also require deposits or turn away potential customers with low credit scores.
- Housing opportunities
Procuring a home loan with a poor credit score can be extremely difficult. Even if you're able to secure a loan for a house, you'll likely have a considerably higher interest rate on your loan (think 1 to 5.5 percent higher) than those with good credit. If you're looking to rent, your bad credit score can lead to a required cosigner on the lease, a larger security deposit, higher rent rates or denial of the rental application. Also, electric, gas and water companies will check your credit to decide how large a deposit you may be required to put down in order to set up accounts with them.
- Hiring decisions
Believe it or not, employers can ask applicants for permission to look at their credit reports as part of the background check in states where it's not prohibited. If the position requires a candidate to work with large amounts of money or access confidential information, employers are more likely to require a credit check as part of the hiring process. A bad credit report can be a red flag to employers that an applicant lacks financial responsibility.
- Insurance premiums
Insurance companies use your credit information to determine the rate of your coverage for property and auto insurance. Bad credit scores can require higher premiums, as well as present fewer opportunities for coverage.
- Checking accounts
Banks check credit histories when you apply to open accounts or get credit or debit cards. They may require you to open an account with a monthly fee, or they may place more restrictions on your account if you have a low credit score.
If you have bad credit but your significant other has good credit, your credit score can significantly hamper your ability to jointly take many of the steps married couples intend to, such as buying a house or financing other major purchases. Furthermore, your individual credit scores can have a large impact on divorce settlements.
How can I fix my bad credit?
If your credit is considered bad (anything under a 649), there are a few things you can do to improve your score. They may not be quick, and they may not be easy, but they're sure to help:
- Get your credit report. One of the worst things you can do is not know your credit score, so get a copy right away. Look it over and make sure there aren't any errors.
- Change your bad spending habits. You absolutely must curb and cut out bad spending habits. Distinguish between what you need and what you can live without. Figure out a way to stop using your credit cards, which only build on your existing debt.
- Create a budget. Take a look at your income and expenses, and build a budget that's feasible. Make a schedule for paying bills and set up electronic reminders, if necessary, so you don't forget and get slapped with late fees.
- Repay creditors. Make sure you pay your bills on time every month, in full if possible. If you're paying off a large debt, paying a little more than the required minimum each month is a great way to bring your debt down more quickly and pay less in overall interest charges. However, once you pay your debt off, don't close your credit accounts — that only hurts your credit further.
- Seek alternative options. When you have bad credit, your interest rates on loans and credit cards are significantly higher, so look into other options, like secured credit cards or bad credit loans. These are manageable options for people with bad credit to create accounts geared toward improving their scores.
Bad credit can ruin your day in more ways than you might expect. It can really keep you from living the life you want to live — or, like my grandma, from getting the cell phone you need. By understanding the ways bad credit affects you and taking steps to improve your score, you can get back on track and make sure your credit doesn't turn another good day bad.