How a Bad Credit Score Affects You

A FICO score of 630-689 is considered “fair” or “average” credit, while a score of 300-629 is generally considered “poor”. Having a bad credit score is not a good position to be in, and getting your credit score back up can be a lot harder than many people think. Having a bad credit score makes you more “risky” in a lender or bank’s eyes, and this often means that you will be charged fees and high-interest rates, ironically plunging you deeper into debt. A bad credit score can cost you hundreds or even thousands of dollars every month, and here we’re going to look at some of the main things that a poor credit score will do to you.

If you’re looking for a credit card, you’re going to be pretty limited. Most prime credit cards with decent interest rates and rewards are simply out of reach for you, and you will only be able to apply for “sub-prime” credit cards instead. These sub-prime credit cards often feature sky-high setup fees, recurring monthly fees, and low credit lines. They often require cash deposits, and sometimes the lenders won’t even report your good credit activity to the credit bureaus.

Most the credit cards you’ll be eligible for will be secured cards, meaning that you’ll have to put forward cash deposits that act as your credit limit. For example, you’d have to put forward a cash deposit of $100 in order to be able to spend $100 on your credit card. Though that may seem pointless, the idea is that you are able to slowly rebuild your relationship with lenders, demonstrating that you can pay off your debts in a way that doesn’t put lenders at risk.

People making car payments will feel the pinch of bad credit too, often paying up to (or over) $10,000 extra in interest on their cars just for having bad credit. Higher interest rates mean that you’ll be paying more for things every month, and bad credit tends to push interest rates up because you’re deemed a risky person to lend money to.

The worst thing about having bad credit is probably your mortgage options. In 2010, it was found that people with bad credit would pay between $50,000 and $130,000 extra for a home due to purchasing a mortgage with poor credit. In 2018, that figure is likely to have increased even more due to inflation.

Having said all of this, bad credit could very well see you being flat-out refused a mortgage, auto loan, or personal loan. Lenders and banks don’t want to lend money out to people who have a history of not paying lenders back on time, and this is what a poor credit score suggests. Even if you have every intention of making your payments on time, you’re a risky borrower on paper. Additionally, if your spouse has co-signed on any credit card or loan applications with you, their credit score could also be dragged down with yours.