Credit. I have a love-hate relationship with it. It can be the bane of our existence or the yellow brick road depending on where you are on the credit spectrum. Unfortunately, for a good chunk of the US population, it’s a bane of our existence.
Growing up, we never got classes on managing our finances in school or how to use credit. For many of us, we were told by our parents that credit is bad and to avoid it like the plague. We ended up learning our financial habits from our family and friend, and learned how to manage credit by just diving in blind folded. As soon as you hit 18, sometimes even before, you started getting pre-approval letters and our thoughts were like: “Oh look, I got a pre-approval for $10,000! Let me go on a shopping spree!” Although not all American families fit this description but, if you’re reading this, you probably do.
If you haven’t dived into credit and you can’t wait to get your first credit card, WAIT RIGHT THERE! Please read this blog first! It’s not going to tell you how to use it, there are great vloggers that you can follow to help you with that! What I am going to share with you is why messing up your credit can be hell. And for those who have already crossed that line and continually ignoring your bad credit, read this blog as well!
There are many drawbacks to having bad credit. Things that are obvious and things that are not. Why not dive right into the nitty gritty of the 9 reasons why having bad credit sucks and why it needs to be fixed!
1) Harassment. Creditors will harass you to a point that you begin to feel like you’re on the America’s Most Wanted list. Well, it’s not exactly the same but when your dodging phone calls, blocking every unknown number from your phone, putting your phone on silent when you see that 866 number, throwing away every piece of mail that says “attention needed”, and changing your name (and possibly voice) when you answer the phone to throw people off, that’s acting like you’re some type of fugitive. Who wants to be harassed to the point of dread and annoyance? I know I don’t! But when you owe money, collectors come-a-calling!
2) Moving is hard. With bad credit, you can’t really pick and choose where you want to go. You’ll end up being stuck in certain and usually undesirable, neighborhoods. Want to move to that neighborhood that’s super convenient, trendy, and has those great bars that you always frequent? Well, you need good credit for that or at lease know someone with an 800 credit score who makes 80x the rent and will be willing to be your guarantor. Most people aren’t that lucky.
3) It affects school choices for your child. Here is a hidden fact: credit indirectly affects your child’s chances of getting into a great school in a great school district. Like I said before, moving is hard, damn near impossible with bad credit. If you have a guarantor, that’s great. But if you don’t have a person to vouch for you, you’re stuck.
4) Can’t get a new or somewhat newer car. Kiss the thought of getting that 2019 Nissan Maxima or that 2017 Mercedes Benz C-class. Banks will not loan tons of money to people with bad credit, even if you may be able to afford it based on your income. In order to make that happen, you’ll need a co-signer. Many people aren’t that lucky. You’ll have to accept the fact that you’ll have to get something a bit older and nowhere near luxurious. Think maybe a 2009 Nissan. That’s if you can even get a loan. If you’re credit is really bad, they may just say no, then you’ll have to look for a $2,500 hoopty instead and pay it in cash. If you’re able to get an auto loan with bad credit, be prepared to cough up interest rates at around 18%. That’s a ridiculous amount of extra money for a hoopty.
5) Can’t buy a home. Sure, you’re dreaming of owning your own one day because your sick of dealing with landlords. But with bad credit, forgettaboutit! Honestly, you may be able to get a home with a 620 credit score but that will depend on the lender, which won’t be many, and also strictly limits where you can live as well as what you can by. You will also have a higher interest rate which will lower your buying power. For every 1% of interest you’re paying, your buying power decreases about 12% percent. I found this out from Gabi Feuer from Freedom Mortgage. So, for example (this is hypothetically of course) lets say you would have been able to get a $300,000 home with your income. You would have been fine at 4% interest but your credit isn’t all that great so they will approve you at 5% interest. Because the interest is higher, you’re now only allowed to purchase something at around $264,000. Banks will lower what you can afford to take in account to their interest rates. That is a steep decrease with just a 1% increase! Interest rates are increasing already due to inflation so imagine having less buying power because of your credit.
6) High security deposits for utilities. If you want a cellphone, or want to start some type of utility service for where you live, you may have to cough up some dough in order to get service. Why? These companies want to lower their risk of loss to service you, so in order to do that, they will ask for a security deposit. How do you get your money back? Just pay the on time for a period of time. Usually a couple of months will satisfy them.
7) Can’t get just any job. Yes, bad credit can affect you from getting that job you have worked so hard to get. All those phone calls, emails, interviews, and in person visits would be in vain. What type of jobs, well it could be a governmental position, a financial position, or an executive position as they are typically highly interested in your financial history.
8) Can end relationships. What is the highest cause of divorce? Finances. It puts a burden on one or all of the parties involved and creates a high amount of stress and tension. Bad financial situations for any relationship can harm the relationship causing countless fights and arguments. It can affect great friendships too.
9) Funding a new business won’t happen. If you are starting a new business, you have to get business credit. Business credit is based on your personal credit. If your credit is bad, you won’t get funding.
As you can see, there are tons of things that will negatively affect you with bad credit. What should you do? Don’t get in this rut and if you are in this rut, fix it! I strongly suggest for you to check out this Youtube Vlogger Will Roundtree as he has so many tips on fixing your credit! Don’t be scared. Stop running and fix it!
Don’t let credit ruin your life. Be smart with it. There are too many negatives not to. Please feel free to share this blog and if you have any questions, reach out to me on the comments!