How Bad Credit Can Affect You and What to Do About It

Credit report

Understanding credit is an integral part of financial literacy. You know that if you have bad credit, it’s going to be hard for you to get other credit, such as a loan for a new car or a mortgage for a home. But you may not understand just how much bad credit can affect you beyond these basics. You may not even understand exactly how you get bad credit, besides failing to pay a bill, of course.

Fortunately, bad credit does not mean the end of the world. You can still get the money you need through personal loans, such as alternative payday loans for bad credit. But you do need to take care of your credit as bad credit can have a lasting impact. Here are just a few of the ways that bad credit can affect you:

Lost Job Opportunities

In addition to running a background check, some employers will also run a credit check — especially if any part of the job involves handling cash. That can include even low-level jobs like cashiering at a fast food restaurant. But even if your job isn’t going to include handling cash, the employer may still run a credit check. Many consider your credit rating to be a reflection of how responsible you are, even outside of the workplace. If you aren’t responsible with your money, you are going to have a bad credit rating, or so the thinking goes.

Losing even one job can have a chain reaction for your career. You lose that one job, and you don’t get the experience that you need. Your salary history also starts out lower. For the rest of your career, you’re a step behind where you want to be in terms of both position and salary. In some cases, you can end up many steps behind.

Failed Business Dreams

You may decide that you don’t want to be part of the rat race anymore. You don’t want to work for someone else — you want to work for yourself. You’re finally ready to open your own business. But you need bank financing for that. If you have bad credit, it will be almost impossible for you to get the kind of money you’ll need to start a business.

You might be able to use unsecured loans to start small online businesses. However, most ventures will require a lot more financing. Unless you’ve got a generous relative with deep pockets who really believes in you, your only options are going to be banks and private investors. Both are going to be keenly interested in your credit history. Bad credit will tell banks you are a risk for not paying back the loan, and it will tell investors that you are not responsible and not likely to be successful in your venture.

Denied Housing Options

If you need to rent an apartment or a house, one of the first things that prospective landlords will check is your credit history. Even if your bad credit is caused by excessive credit card bills and not failure to pay rent, you are not likely to be approved to rent the space. You may struggle to find a place to live that you will like and that you can afford.

Many of the housing options for those with poor credit end up being in unsafe neighborhoods or in properties that are in disrepair. These are the kinds of places that those without options are left to rent. You don’t want to put your health or your safety at risk by being left with one of these properties as an option. Keep your credit in good shape so you have the choice of where to live.

Whether you fall behind on the bills or you drive up your credit card debt and have to file for bankruptcy, bad credit can follow you for a long time. Not only can bad credit cost you future financial opportunities, such as getting loans at the best terms, but it can also cost you employment, business, and housing opportunities. Poor credit can have a profound impact on your life. Fortunately, there are many ways to build your credit back up with time and effort.


Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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