What Bad Credit Means to You

Introduction

Your credit rating affects many areas of your life. While good credit can help ensure that you get that loan, receive a good interest rate, are approved for insurance, or are hired for a particular job, a bad credit score can wipe out all those advantages for you. A bad score can follow you around for some time, seven to ten years if you’ve had a bankruptcy.

A Bad Credit Score and Lender Risk

To understand how lenders, insurers, credit card companies, and employers think of bad credit, all you have to do is think of “risk.” These companies will have enough data and statistics to know that a person with bad credit means a high risk.

The lender knows that people with bad credit have a higher delinquency rate than people with good credit. In fact, 87% of those with credit rates between 300 and 499 will have delinquencies. They may only make up 1% of the population, but that means out of every 100 people who fall into that category, 87 of them will be delinquent—if you were a lender, would you want to loan money to them?

A Bad Credit Score and Seeking Employment

Pretend for a moment that you are en employer and are choosing between someone with bad credit—who could be irresponsible or need money to pay off huge debt—and someone with good credit. If you are hiring for a position where goods can be stolen, who would you choose? If you are interviewing people for a security position? How about if you are looking for a manager for a department, someone you can hand a lot of responsibility to? It would be difficult to choose the applicant with a poor credit history unless it was caused by a crisis she over which she had no control.

A Bad Credit Score and Insurance

If you were an insurance agent, you would know that statistics also play a role for you in your assessment of people with bad credit. Although some consumer organizations are fighting this as this article is being written—and succeeding in some places—they feel their statistics show that those with bad credit have a higher tendency to file claims. There could also be a correlation between reliability with money and reliability with an automobile. Who would you want to insure—the person with good credit who shows responsibility, or the person with bad credit who may not? Although not everyone with bad credit is irresponsible (some do have crises that overlap into their financial lives), look again at the percentage of delinquencies.

A Bad Credit Score and Loan Costs

Bad credit means higher costs when one does get a loan. Bad credit also means being turned down a lot, losing opportunities, and generally being perceived as untrustworthy. If you have bad credit, take the time to fix it—you won’t be disappointed.