5 Costly Consequences of Bad Credit

Posted by Ryan Massengale on February 9th, 2019

Bad credit can be a very expensive burden. Credit history helps banks, lenders, employers, utility and many more companies determine risk.

The fact that so many businesses now judge you based on your credit history, having bad credit can make life extremely difficult and costly.

Here are some of the costlier consequences of bad credit.

1. Denial of housing.

People with bad credit often experience difficulty getting approved for an apartment. Landlords check credit prior to approving rental applications. Having bad credit can make it much more difficult to rent an apartment. If a landlord agrees to rent to you with bad credit, you’ll likely be required to pay a higher security deposit. 

2. Security deposits required to open utilities.

When you need to establish utility service in your name, as part of the application process, your credit is checked. Whether it’s water, electricity, phone or cable, utility companies will look at your credit history. If you have a bad credit history, you'll have to pay an upfront security deposit to establish service in your name.

3. Employment denial.

Not all employers check your credit but many do. While employers are not checking your credit score, they are checking your overall credit history. Certain jobs, especially those in the finance industry, require you to have a good credit history. Employers are looking for negative information like high debt owed, outstanding bills or bankruptcy. This type of bad credit information could cost you a job offer.

4. Bank account denial.

Banks can deny a checking or savings account if you have less than perfect credit, unless you find bank accounts for bad credit. Banks use a type of checking account reporting agency called ChexSystems. Some use Early Warning Services which is also a checking account reporting agency. Your banking history is being tracked.

ChexSystems and EWS is much like the three major credit bureaus except they only maintain negative information. The three major credit bureaus maintain both positive and negative information about your credit history.

About 80% of banks use ChexSystems to verify accounts.

Not having a bank account means you may have to rely on alternative financial services like check cashing stores, money orders or prepaid cards – all of which come with fees. A lifetime of these fees add up unlike having a traditional free checking account.

5. High interest rates on your credit cards and loans.

Banks look at bad credit scores as an indication you might default on a loan or credit card. Having a low credit score indicates you're a riskier borrower than someone with a better credit score. Bad credit scores don’t necessarily prevent you from getting approved. However, if approved, you'll pay more in interest over time than you would if you had better credit.

The more you borrow, the more you'll pay in interest and this can be costly. For example:

  • Let’s say you’re borrowing ,000 for a 5-year new car loan with good credit (720-850). With an interest rate of 3.75% you’ll pay ,965 in interest over the life of the loan.
  • Now let’s say you’re borrowing ,000 for a 5-year new car loan with bad credit (500-589). With an interest rate of 15.25% you’ll pay ,706 in interest over the life of the loan.

A bad credit score costs ,741 more in interest. That’s a big chunk of money that could have been put in a high-interest savings account. 


It’s worth the time and commitment to fix bad credit. If you can improve your scores, you’ll save money and have a much easier time getting approved for basic financial needs.

Several years ago, FICO disclosed how many points credit mistakes take away from your scores. A few examples of mistakes and their effects on FICO revealed the following:

  • Maxed-out card: This mistake costs 10 to 30 points for someone with a 680 FICO score, and 25 to 45 points for someone with a 780.
  • 30-days-late payment: 60 to 80 points, and 90 to 110 points.
  • Debt settlement: 45 to 65 points, and 105 to 125 points.
  • Foreclosure: 85 to 105 points, and 140 to 160 points.
  • Bankruptcy: 130 to 150 points, and 220 to 240 points.

The higher your score, the more points you’ll lose.

Paying bills on-time and decreasing your credit card balances will help improve credit scores. Monitoring your credit reports for mistakes will help you keep track of your credit history. You can check your credit reports for free once a year.

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Ryan Massengale

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Ryan Massengale
Joined: February 9th, 2019
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