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4 Effects of a Bad Credit Score on Mortgages, Loans, and Everyday Life

By David Bakke

credit score and financesI think we can all agree on the fact that your credit score is one of the most important things in your financial life. I also think we all know about some of the more obvious effects that a bad credit score can have on your finances. First and foremost, if you have a bad credit score, you won’t qualify for the credit cards with the best rates. This can lead to an unending cycle of credit card debt and paying too much in interest. Second, a bad credit score will have a large impact on any kind of loan for which you might want to apply. Whether it is a mortgage, a personal loan or a business loan, the terms are just not going to be as favorable as they could be.

However, your credit score has many other far-reaching effects on various aspects of your life. Here are 4 more ways that your credit score affects your finances in ways you may not be aware of.

1. Insurance
Just about all insurance providers factor in your credit score when determining what kind of “risk” you are when it comes to issuing you a new policy. Therefore, insurance policies issued to people with lower credit scores are much more likely to come with higher premiums. Just think about all the different types of insurance that you have – health insurance, life insurance, auto car insurance, renters’ insurance, or homeowner’s insurance, just to name a few. The extra money you could save by maintaining a good credit score is significant.

2. Landlords
If you thought your bad credit score wouldn’t affect you because you rent, you would be wrong. Most rental property landlords now run your credit background before deciding whether or not they will rent to you, and in some cases, what you’ll pay for a security deposit or even rent. Also, they may use your credit report to locate past landlords and to find out more about your payment history. Finding cheap apartments for rent can be tough as it is. If you can help it, don’t make it harder for yourself with a bad credit score.

3. Potential Employers
It is common practice in the job force today for potential employers to run a credit check on all prospective hires. They use this to look at your past employers and any accounts sent to collections, as well as to review your revolving accounts, your installment accounts and your mortgage accounts. While it is illegal to deny a person employment based solely on a bad credit score, it certainly factors into the decision-making process. In today’s tough job market where competition is strong, it would be a shame to lose out on a position because of your credit score, especially if you have a long list of good job skills.

4. Utility Companies
Back in the days when my credit score wasn’t so great, I had to shell out deposits to the utility companies every time I moved. The utility companies use these deposits as a hedge to make sure that customers with bad credit pay them for the services that they provide.┬áIn some cases, these deposits almost doubled my overall moving expenses. But once my credit score reached a certain level, I was no longer required to make these deposits and was thus able to reduce my utility bill.

Final Word

As you can see, your credit score affects virtually every aspect of your financial life – not just the APR that you pay on your credit cards. So, in this day and age, it is more important than ever to improve your credit score as much as possible. Check out the factors that hurt and affect your credit score for a better understanding of how your score is calculated.

Has your credit score affected your life in unexpected ways?

(photo credit: Shutterstock)

David Bakke
David started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called "Don't Be A Mule..." Since then he has been a regular contributor for Money Crashers. He lives just outside Atlanta, GA and most all of his free time is taken up by his amazing three year old son, Nicholas.

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  • Dexter

    Very good information an advice. I think it is very true that your credit score really effects your life. Even when applying for an apartment or mortgage, your credit score is critical.

    • David Bakke

      Dexter

      Thanks for commenting–we appreciate your feedback

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