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5 Expensive Reasons to Avoid Bad Credit

Bad credit might seem subjective, but most lenders are on the same page regarding credit scores. Excellent credit scores are those above 750 and bad credit scores are usually below 550. There is an obvious range in between these two scores, for which you are typically considered fair or average. It is when you have "bad credit" that you really pay the price in many different ways.

1.  Job Prospects Might Be Scarce

Your ability to perform a job might not seem to have a lot to do with your credit score, but many employers use this as a basis of your overall personality. If you have bad credit, the employer might assume that you are irresponsible in your personal life, which could carry over into your professional life. This could leave you without your dream job and instead, working a job you are over-qualified and underpaid to do.

2.  Utility Costs Might Be Higher

You might assume that utility costs are the same across the board, but some companies require more money from those users that have poor credit. The rates you pay might be the same as your neighbor who has great credit, but the utility company might require a security deposit from you. This deposit will serve as an insurance policy if you were to not pay your bill. The amount you will have to pay will vary from company to company.

3.  Insurance Premiums Might Be Higher

Any type of insurance is a hedge against a risk you face. This could be the risk for auto accidents, injuries, or damage to your home. No matter the type of insurance, the insurance company is covering you despite your level of risk. If you add a level of complexity to the equation by having bad credit, though, the insurance company will likely charge you higher premiums because the likelihood of you paying your insurance bills on time are lower than someone with good credit.

4.  Interest Rates Are Higher

Any type of loan you apply for when you have poor credit scores will have higher interest rates than someone with good credit. This goes for auto loans, house loans, and personal loans. Your credit score is a risk rating for the lender. The lower your score, the less likely you are to make your payments as scheduled. With a higher interest rate, the lender has a better chance at making money even if you do not make your payments on time.

5.  Credit Card Security Deposits

Even credit card companies will charge you more if you have a low credit score. Despite the high-interest rates credit card companies charge most borrowers, they might also charge you a security deposit in order to obtain a credit card. A secured credit card means you put down the amount of money that your credit line is worth. For example, a $500 credit line would require you to put down $500. This way if you were to miss a payment or default altogether, you would lose your security deposit, yet the credit card company would still get paid.

If you have bad credit, you can start picking it back up with a few simple steps. Start paying your bills on time and decrease the amount of credit you have outstanding at any given time. These few steps can help your score increase quickly, enabling you to save money in many areas of your life. Your credit score affects many areas of your life, both personally and financially, so it is to your benefit to fix it as quickly as possible.