The Cost of a Bad Credit Score

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The following is a contribution from Jen at The Money Mail. 


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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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • Your once a year free report is from all 3 credit bureaus. A trick I use to get one at a time, which effectively lets me see my credit report 3 times a year. I just space them out: 1 in April, 1 in September, and 1 in January. Note though that you only get a free report. If you want your score, you have to pay for it.

  • Checking your credit report is very important not only for credit score reasons, but to make sure nobody is trying to steal your identity. Even though I hate the metric, credit scores are used (rightly or wrongly) in a lot of different areas of your life.

  • Credit scores are so important, for all the reasons you listed. We are looking at financing a major home sewer repair and it makes a huge difference in interest rate depending on what your credit score is. Mine is relatively high and I will get close to the lowest rate, but it’s still not cheap. I’d say working on improving your credit score is definitely a worthwhile investment.

    • Identity theft can also be uncovered by regular monitoring of your credit reports. A friend of mine was shocked to see a credit line from braclays for a credit card. He dint eve know that they issue credit cards!

  • Some careers, police, higher ranking military, defense contractors…can actually lose their job due to a low credit score because the potential for bribery since they are in a more desperate situation is there. I hate how much credit scores do play in our current economic system. Almost everything checks it now a days.

    And I second the notion of checking your credit report to every 4 months or so to make sure there’s not been any suspicious activity. I haven’t had to deal with it, but I’ve heard it’s a huge hassle to try and get something off of your credit report if it shouldn’t be on there.

  • The one that I did not know about until recently were insurance companies pulling them. I never heard of utility companies pulling credit scores but I guess it is possible. From what I understand is that some employers may also pull your credit score. I have noticed how ours have been moving upwards the more we get our debt balance down which I think is pretty cool. We are never late on paying anything so the big factor with our score was the balances on our cards and loans. The lower they go, the higher our score goes.

  • Yeah, in society today, you’re in big trouble with a bad credit score. When I was looking at private student loans to avoid the unsubbed 6.8% garbage offered by the government, the swings in interest rates were huge! like 5-6%! Think of how much that will be in a lifetime for someone attending professional school racking up $200k in debt!

  • Many people think that a credit score is only good when you are trying to get a loan. While this is true to an extent, you need to practice keeping your credit score solid at all times. Employers look at them and so do other organizations. You also never know when you might need a loan and increasing a credit score is not immediate.

  • Alexa says:

    It’s not just auto insurance that is higher with a low credit score it is homeowners and renters insurance as well. There are many reasons why having a good credit score is important. Credit reports should be checked no less than twice a year to make sure the information in them is accurate.

  • My Financial Independence Journey says:

    The career implications of a low credit score are the scariest. It’s sad that even if your job doesn’t give you any direct access to money companies may still use your credit score as a proxy for being responsible and refuse to hire you because of it.

  • pauline says:

    Even a 0.20% difference on APR makes a big difference over a 30 year mortgage, so better check and fix what you can before applying.

  • I certainly wouldn’t be able to work in Finance again if I had any major credit hiccups. It’s a good Idea to check your report even if you think you’re clean as things can be registered in error and they can be time consuming to rectify.

  • David says:

    When I went to buy a car, I was thinking about leasing the car, but when I established that I had no previous credit, I was hit with a 7.9% rate on the car. I decided to just pay for the car in full with finances. But that’s when I learned the importance of having a strong credit score!

  • A good credit score is always a good thing to have but how helpful it is past owning a home and a car and whatever else one needs it for (maybe a job) that’s as far as it goes. I’ve only had to have my score accessed to get credit cards and a mortgage. Many organizations that deal with sensitive material may ask for a credit report and so it’s crucial to make sure it’s in stellar shape. I also order my report once a year for free to go over it and make sure it’s all correct. You never know when someone steals your identity and starts messing with your life.

  • Messed up credit can cost you very much indeed. I am lucky enough to have kept good credit even when I was making not so great financial decisions. It has def. saved me some money.

  • It is imperative to check your credit report at least on a yearly basis. I had a good friend who was the victim of identity theft and it was an absolute nightmare for him to get it fixed.

  • Justin says:

    I’m not crazy obsessed about my score. However, because I plan on working in the financial industry, having a great credit score is extremely important to me.

  • Nice post Jen! You make some great points about the importance of credit. I have to say though it bothers me that our culture’s system penalizes individuals who are trying to make wise choices with their money. My plan for the future is to get rid of all my debt (I’m almost done on the mortgage) and then plan wisely enough to pay cash for everything the rest of my life. Over time my credit score will basically disappear. The fact that my utilities and insurance rates will be affected by my choice seems ridiculous.

  • I use credit karma to get an approximate score. I also always take advantage of the free credit reports once a year. Fortunately bf and I both have excellent credit scores so it’s something we don’t have to worry about.

  • You really have to have a good credit score to save money, even if you never finance anything. We just got a great rate on homeowner’s insurance because of our credit scores. I don’t necessarily agree with it, but it’s reality, and I like to save money.

  • Yes, do not check your credit score often or if it’s not really needed. What a lot may not know is that it affects your credit rating in a bad way.

  • I’ve found that the contents of your report have a larger impact than your score itself. I have reached the point where my score is on the high end of “fair.” But when I applied for credit for the first time since I got myself into trouble a few years ago, I was denied. My score was above the stated minimum, but they said my credit history had too many bad debts on it. Funny, because off all that “charged off” debt, there is only one that I haven’t paid off yet!

    So instead of an Amazon card that I applied for only for the $50 bonus that could have upgraded the Kindle Fire I’m buying with gift cards from surveys, I now have another negative mark on my report. 🙁

  • Having been a mortgage broker for a number of years I cannot stress enough the importance of a good credit score. Most financial institutions value collateral very little now a days. Since it takes time to repossess and there is no telling what condition the asset is going to be in to resale, most institutions look at your income (ability to pay) and credit score (willingness to pay) as the key factors in approving loans. Review it at least once a year for errors. The people who data entry these things make mistakes all the time.

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