Like a bad hangover, a low credit score can come with lots of unpleasant side effects. Here are 4 ways it could impact your day-to-day life.
Getting turned away for a loan or credit card is just the start when your finances aren’t in great shape. There are many ways in which bad credit can affect you, and some may come as a surprise. Here are 4 of the things that can be impacted, and what you can do about them.
1. Buying a house (or even renting)
Getting approved for a mortgage is the first hurdle. But even if you are eligible, you could be hit with very high interest rates if your credit’s worse for wear. As well as a rise in rates, your mortgage offer could come with restrictive terms.
For instance, you may need a much larger house deposit, or you may only be able to get a mortgage if you have a guarantor. In short, the better your score, the better the mortgage deal.
The implications are just as bad for renters too. Many letting agents and landlords do credit checks with new tenants to be sure they can pay on time. If a landlord agrees to rent to you despite a troubling credit history, they may ask for a bigger deposit, so they have that added security.
2. Getting a car and insuring it
Many people get a personal loan or turn to car financing products when they need to fund new wheels. But lenders reserve their best interest rates for good credit customers, so it could end up costing you a lot more than expected.
On top of expensive interest, you could be charged higher premiums for car insurance too. A way around this would be to pay for your annual insurance upfront, instead of monthly Direct Debit. But this would mean saving up a large amount at the start of each insurance year.
3. Applying for jobs
There are also certain jobs that could be affected by a bad credit rating. Roles in the finance industry, for instance, look for people with good money skills. This is especially true for top level management or advisory positions. Not only will your score be checked, but your credit report will need to be free from adverse history (such as missed payments, CCJs or bankruptcy).
It’s a legal requirement for law and finance firms to perform a credit check on employees, but other companies will ask permission before doing so. If in doubt, speak to recruiters about your position and they can advise on the best approach. Being honest with your future employer about your past when they ask for a credit check is a good way to deal with the situation head on.
4. Getting a mobile phone contract
Something as simple as signing up for a mobile phone contract can be tricky if your credit score is low. Just like other creditors, phone companies want to know that their customers are reliable and can pay their bills on time. If you don’t pass the credit check, a retailer may offer other solutions, such as the opportunity to pay an upfront deposit. This would be returned at the end of the contract, or after an agreed period.
The other alternative to a phone contract is saving to buy a phone outright and using a pay-as-you-go SIM card.
These are just some of the things that can be impacted by having bad credit. It’s not just a numbers game with lenders, insurers and employers - it’s about proving that you are responsible with finances, so keeping an eye on your credit report is essential. Be sure to download yours and check what things are holding you back.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.