What Are The Side Effects Of Bad Credit

Photo Credit: Deposit Photos

Your credit score is derived from your history of payments and the amount of debt that hangs over your finances at any point in time. Many residents of Las Vegas have experienced this problem. For instance, KTNV reported a Las Vegas man, now homeless, due to bad credit and debt. This is why your credit rating is so important. It reflects how trustworthy you are from the point of view of the banks and other lenders and your ability to repay a loan. Your credit score gives or takes away confidence in your ability to repay a loan. Having a bad credit score has a lot of side effects that constrain your economic possibilities and quality of life, as I will show in this article.

Your Credit and Loan Applications May Be Rejected

Given the degree of risk that you pose, a credit card issuer or lender may feel that it is not prudent for them to approve your credit card or loan application.

Approvals for Apartments Are Harder
Even if you are not using credit to rent an apartment, your prospective landlord will typically check your credit score before approving your rental application. This is because a credit score is used by many people and organizations as a way of determining your likelihood to live up to your financial obligations. A low credit score may suggest that your finances are so bad that you may not be able to pay your rent. Or, it may imply that you cannot be trusted to pay your rent because you are bad with finances. Whatever conclusions your prospective landlord arrives at, it won’t be good. A poor credit score doesn’t scream, “Rent out your property to me!”

Some landlords may still rent out their property under these conditions, but they will ask you to pay a bigger security deposit. Again, your costs rise because of the risk that you carry.

Security Deposits for Utilities
Like prospective landlords, utility companies will typically check your credit score before granting your application for service. This is true regardless of how reliably you have paid utilities in the past. If you have a poor credit score, then the utility company will ask you to pay a security deposit upfront before they establish service.

Rejections for Phone Contracts

Cell phone companies also check credit scores before approving applications for cell phone contracts. Like your prospective landlord or utility company, the cell phone company uses your credit score to determine your riskiness. If you have a low credit score, that tells the cell phone company that your payments are unreliable. Therefore, the cell phone company will prefer to give you a prepaid cell phone, rather than a contract, or they may not give you any kind of contract at all.

If you lease or make payments on your phone, you may be asked to pay a higher upfront fee, or the month-to-month payments you will have to pay will be higher.

High-Interest Rates

A credit score tells a bank how likely you are to default on your own, whether it’s in the form of a credit card or other loan instrument. A low credit score tells the lender that you are highly likely to default on a loan, at least compared to a person with a good credit rating. Because you carry so much risk, lenders have to charge you a higher interest rate. This is the compensation they receive for taking on the risk of giving you a loan.

So in the event that you find a lender or credit card institution willing to give you a line of credit, you will pay interest at higher-than-normal levels because you’re so risky. Borrowing becomes more expensive for you than if you had good credit. Thankfully, if you still need a loan, you can get no denial payday loans from a direct lender