I Have Bad Credit. How Will This Affect My Life?

Credit scores are a metric used by lenders and other financial institutions to determine an individual consumer’s “credit worthiness.” This pertains to whether it’s “safe” to give you a loan — that is, you’ll pay it back on time — or whether it’s a risk, and you may be likely to default.

Having a low credit score isn’t the end of the world, but it’s something you’ll want to fix however you can. Mainly, it affects your ability to get loans when you need them. This can include credit card limits, car loans, home loans, and more. It could prevent you from doing something like financing a car that you need for transportation.

Sadly, bad credit can happen even to responsible people. It’s not something that only happens to reckless spenders who max out all their credit cards and never pay bills on time. Something like a medical emergency can leave you with unmanageable debt, eating away at your credit score over time.

Here are a few concrete problems you might run into if your credit score is very low.

Being denied credit or loans, or charged more to access them.

If you’re considered too much of a risk, you might be denied a loan, or turned down for a credit card. If you’re able to get them, the costs will be higher because of that perceived risk. You’ll have more fees and higher interest rates, due to being issued what are called “subprime loans.”

Obtaining a mortgage can be more complicated.

Poor credit isn’t always a total dealbreaker when it comes to mortgaging a home. However, it will make the process more difficult and more expensive for you.

Your credit score will determine which loan options you can or cannot access. For example, one lender, Quicken Loans, offers FHA loans only to consumers with a credit score over 580. Conventional loans, a popular option, require a score of 680, which is considered relatively high.

Good credit can also make you eligible for lower down payments.

Along with your general credit score, specific items on your credit report can also impact your mortgage. If you’ve declared bankruptcy, there’s a waiting period to get a mortgage afterward. There are also limits to how many late mortgage payments you can have on your record.

Low Credit Can Hurt You, Too

You’d think that you’d be better off not taking out loans or incurring debt. But a lack of credit can also be detrimental, and looks the same as “bad credit” to lenders.

You can help build credit by doing things like taking out a secured card with a credit limit based on the amount of money deposited into your checking and savings accounts. This lets you build some credit with minimal risk, since if you don’t pay, it will just be deducted from your balance.

If You Have Poor Credit, Improving Your Score Can Make Things Easier in the Long Run

If you have poor credit — generally defined as a score below 580 — it’s a good idea to look into your options for improving your credit score. This does take time, but in the long run, it can make things a lot easier for you financially. With a decent credit score, it’s a lot easier to get access to the loans and credit you genuinely need.