How Does Bad Credit Affect Me in the Future?

After you have suffered credit problems, get yourself back on track by paying bills on time and keeping the amounts you owe low to boost your credit as quickly as possible. In the meantime, you will probably see negative effects of your bad credit history in a few areas.

Difficulty Obtaining Credit

If you have a bad credit score, you might have trouble obtaining new loans and credit cards. This is because your poor management of credit in the past leads lenders to believe that you might fail to repay money they lend you. For example, to get a new credit card, you might have to apply for a secured credit card, which requires you to make a cash deposit with the credit card company to get a credit line of that amount.

Higher Interest Rates

Because of the high risk lenders have when lending you money, you will probably have to pay higher interest rates than people who have better credit than you do. This significantly increases the cost of borrowing money. For example, say you want a mortgage of $150,000 to be repaid over 30 years. If your credit score were excellent, you might get an interest rate of 5 percent and pay $139,883.68 in interest over those 30 years. However, with a bad credit score, you might only qualify for a rate of 7 percent, which would increase your interest cost to $209,263.35.

Higher Insurance Premiums

Insurance companies in many states use an insurance risk score, which is similar to a credit score, when setting insurance premiums. Insurers have found that people who manage credit poorly are more likely to file insurance claims than people who manage credit well. Therefore, your bad credit could cause you to pay more for car insurance and homeowners insurance.

Difficulty Obtaining Employment

Employers can legally consider your credit report when determining whether or not to offer you a job. Your credit reflects your overall responsibility and can be an indicator of future job performance. Some types of jobs that include working with money could tempt people with debt problems to steal. In addition, people with bad credit often experience stress about finances, which can affect job performance.