The Cost of a Bad Credit Score

credit score

The following is a contribution from Jen at The Money Mail. If you’re interested in contributing to Frugal Rules, please consult our guidelines and contact us.


You may not give much importance to your credit score but others are looking at it at crucial points in your life and a low credit score will cost you!

In order to understand the importance of a credit score, let’s start at the beginning.

What is a Credit Score and how is it used?

A credit score is the number calculated using your credit history (credit report) and is used every time you apply for a loan of any kind. It is also used for various other purposes. The score is calculated using information available on your credit report such as your payment history, types of credit used, amount owed, and new credit applied for. If you’re currently in the market to do something like buy a house then it’s likely your mortgage broker might be the best source to have your credit report explained to you, if you have any questions regarding it.

Your credit score is essentially a measure of your creditworthiness and indicates the level of risk an institution is taking when they lend money to you. The most commonly referred to Credit Score is issued by FICO and can vary from 300 to 850. The higher your score, the easier it is for you to get a loan and possibly at a lower rate of interest. Since your score score is a measure of how well you have managed to pay back the credit you have drawn on, it is also used by lenders, employers and property managers as a way to see if you are a responsible person or not.

A lower score will not just hurt your chances of getting a loan; it may also affect your career. These are some things which will cost you more with a low credit score:

Lenders will charge a higher rate for personal loans. It will not be easy to find a lender if your credit score is low. Even if you are successful at finding a willing lender, they will likely charge you a higher rate of interest. So a loan can be an expensive proposition if you have not worked to improve your credit score.

Cars and apartments can cost more. You will get a higher APR on car loans and mortgages if you have a low credit score. Lenders demand a higher rate of interest as they view people with lower scores as higher risk and want additional interest to make up for the risk.

Insurance premiums will be higher. An auto insurance policy will likely come with higher premiums when you have a bad credit score. Auto insurance companies view people with lower scores as more likely to file for claims or as people who may default on insurance premium payments.

Utilities may also be affected. Service providers are cautious of poor credit scores. They would like to be assured of timely payments and will charge a hefty deposit to offset any default. So with a poor credit score or no credit history, you are looking at paying a hefty deposit to get the service. Landlords are wary of tenants who cannot pay their rent on time; they may charge a larger deposit if they are not happy with your score or simply ignore your application.

Your career may also depend on your credit score. Prospective employers may check your credit history. This may generally happen when you are applying for a new job. Having a bad credit score may be viewed as your inability to manage your finances well and may indicate potential poor performance on the job. You may lose out on career opportunities because of a poor credit score.

What can you do?  

Evaluate your credit report periodically to detect any dues or errors on the report and be sure to make your payments on time. You can request your free credit card report from the official website once every year to ensure that the details on the credit report are accurate.


Editor’s note: A good score can be a great way to help prevent against things like higher rates on loans as well as prevent against loss of potential job opportunities. I was questioned about my credit at a previous job even though my credit had been fine for six to seven years, so it does happen.


Author Bio: Jen writes at The Money Mail, a group personal finance blog which talks about various topics related to personal finance, career and productivity. Jen specialises in topics related to career management and credit. You can follow her @the_money_mail


Photo courtesy of: 401(k)2013

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I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. I'm also a freelance writer, and would love to help out if you have the need. If you're wanting to learn how to monetize your blog, check out my blog coaching services to see how I can help you take your site to the next level.


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