When you have good credit, financial transactions that involve borrowing money generally go a lot smoother. You can walk into a lender with confidence and, if you don’t like the terms you see from this particular lender, you can easily go elsewhere and another lender will more than likely be happy to have your business.
When you have bad credit, however, it’s a totally different story. Lenders may very well work with you, but financial matters can be stressful. Walking into a lender, you may feel a bit nervous. “Is my credit high enough to get approved?” you may anxiously wonder to yourself. You have to take whatever terms are available to you if you want to borrow and your overall options in general are much more limited.
Credit in America
As of 2012, the average American had a credit score of just under 690, which is only a “so-so” score, and according to data published on Card Hub, around one-in-three (35 percent) consumers had a score under 650, which placed them in the below-average or bad credit range.
Why do people have bad credit? Of course, financially literacy issues, high debt, and inadequate budgeting play a role. Then there are those who damaged their credit immediately upon reaching adulthood. This can take time, energy, and money to repair that some people simply don’t have. Other times, bad credit is the result of financial struggles where people simply don’t earn enough money to cover their expenses — for those individuals, bad credit comes along with being broke.
Having bad credit often results in a vicious cycle. Your mortgage payment on a home, or your payment on a vehicle, is substantially higher than it would be if you had good credit. You may be financially struggling to pay debts, thereby leading to having bad credit in the first place, which therefore leads to higher rates and payments for future debts, which then leads to more financial troubles down the road. It all comes around full circle.
As if high APR and difficulty being approved wasn’t bad enough, having bad credit can even cost you job opportunities. According to data published on CNN, from 1998 to 2010, the percentage of employers who checked all or some of their candidate’s credit files rose from 25 percent to 60 percent. Your credit can deter you from obtaining a job for which you are qualified.
When opening accounts for utilities, like electricity or water, your credit score can be the difference between paying a deposit and signing up without any form of collateral. Even when changing cable or satellite dish providers, a poor credit score may result in a hefty deposit. Since businesses view those with bad credit as a risk, they take measures to protect themselves in spite of the financial impact this may have on certain consumers.