5 Things You Can’t Do With Bad Credit | Lifestyles
Everyone takes their credit score for granted until they need a loan. But, the simple fact is that there are things you can’t do with bad credit.
The debt-free crowd will tell you that it doesn’t matter, that you should strive to pay off all your debts and not use borrowed money. It’s easy to think that you won’t have to worry about your credit score, but it’s not that simple.
Before you miss that payment, check out this list of things you can’t do with bad credit and get ahead of your credit troubles.
Try buying a house with bad credit
The lack of mortgage options for borrowers with bad credit has gotten so bad that the Federal Housing Administration ( FHA) created a new program for people with bad credit. Borrowers with a credit score of 580 or higher on the FICO scale only need a 3.5% down payment.
Miss that credit score threshold, however, and even the FHA requires a 10% down payment on your loan. The FHA also requires a debt-to-equity ratio of less than 43%, which means your monthly payments cannot exceed $4.30 for every $10 you earn each month.
It’s a good program for bad borrowers, but there’s still a huge problem. It doesn’t matter for the interest rate you get on your bad credit mortgage. Even if you are approved for a mortgage, the bank will calculate a rate based on your credit score.
Potential owners will check your credit
Have you ever wondered why you need your social security number on house or apartment rental applications?
This is because the owners check your credit before signing this rental agreement. Besides your credit score, they look for how you pay your bills and how often you miss payments. Most potential landlords won’t tell you right away that they’re checking your credit or that they declined your application because of a bad credit scorebut it happens all the time.
And because it’s impossible to prove that you were denied a lease because of your credit, there’s nothing you can do about it. Property management companies don’t want to take the risk of having to chase tenants for rent so they don’t take a chance if your credit history isn’t great.
Want a good job? Get good credit first
Employers aren’t legally allowed to make a hiring decision based on your credit score, but they can check your credit report.
Potential employers look at your credit report to get an idea of your financial responsibility. If you’ve missed payments or breached your credit agreements, will you meet your job responsibilities?
As with hiring, most employers won’t say they turned you down for an interview based on your credit report. It exposes them to too many potential legal problems, so they’ll say they’ve found someone more qualified.
A history of nonpayment or bankruptcy can reduce your chances, especially for management jobs and anything related to finance. Even in jobs where you don’t expect to worry about your bad credit, employers won’t hire you if they think your money troubles might start causing problems at work.
Get a cell phone contract with or without bad credit
Are you starting to see a trend? Basically, any time you sign a long-term contract that requires monthly payments, you probably won’t be able to do that with bad credit.
Cell phone companies offer hefty discounts at retailers like Best Buy and Walmart for the free or discounted phones you get when you sign up for a long-term contract. Verizon doesn’t want to owe you money if you don’t meet your monthly payments, so it’s unlikely to extend these great deals to people with bad credit.
You can still get a pay-as-you-go plan with poor credit, but be prepared to pay hundreds for that new smartphone.
In addition to not giving you the best deal on contracts if you have bad credit, cable and other companies are allowed by the Federal Trade Commission to charge more for risk-based pricing. This will be additional fees that they charge due to your credit report. For example, sprint charges an additional $7.99 on this risk-based pricing, and other companies charge up to $15 more per month for this bad credit fee.
Your bad credit will cost you higher insurance premiums
Insurance companies are using a study from the 90s to justify charging more to people with bad credit. Almost all auto insurers (95%) and 85% of home insurers use what’s called credit-based insurance scoring to determine your premiums.
According to the National Association of Insurance Commissioners ( NAIC), insurance companies look at five areas of your credit report to calculate your credit-based insurance score.
- Payment History (40%) – How often do you make payments on time
- Unpaid debt (30%) – How much debt do you have
- Credit history (15%) – The length of time you have had credit accounts
- New credit (10%) – Requests for new loans you have made recently
- Credit mix (5%) – The type of credit you owe, including mortgages, credit cards, car loans
These factors are similar to those used to calculate your credit score. However, insurers aren’t allowed to discriminate based on your credit score alone, so they’ve found a way around it by saying they’re looking at the factors instead of your FICO score.
Either way, you won’t get the cheapest insurance premiums with a subprime credit score. Worse still, you are required by law to carry certain types of insurance, so you really have no choice but to pay the higher credit charges.
As bad as all those financial things you can’t do with bad credit, there’s one more reason to protect your credit score.
What to do if you have bad credit
There are ways to fight bad credit. Some work to boost your credit score in a month, while others will take a while.
First, you need to understand why you have bad credit and avoid making it worse. This means honestly looking at your credit report to see what’s on it, including late payments and loans that have been collected.
If you’re having trouble paying the bills, you need to do something to close the gap quickly. The more debt you have, the worse your FICO score will get.
- Sell what you can to pay off your debts
- Consider getting a secondary hustle to earn some extra cash
- Get a debt consolidation loan to pay off high-interest debt and lower your monthly payments
The good news is that bad credit doesn’t last forever. Surveillance your credit score and making payments on time can help you improve your score in less than a year, and even bankrupt people can get some loans approved in a few years so you can start investing your money. Try not to focus on what you can’t do with bad credit if you’ve already missed a few payments. Instead, do what needs to be done to fix your credit score and get out of the bad credit trap.
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This article was produced and syndicated by Geek Wealth.