According to a 2017 survey by financial advice website NerdWallet, about 12 percent of people in the United States have never looked at their credit score, and many people don’t realize the many ways bad credit can affect them.
Did you know that if you have bad credit, you might not be able to get cellphone service? Roughly half of people NerdWallet surveyed were unaware of this fact. And 43 percent of respondents didn’t know that bad credit could make your car insurance more expensive.
Educating yourself about credit can help you avoid some common consumer pitfalls in the future. Take a look at the following facts about credit and its effects.
Understanding Your Credit History
When you apply for a loan or a credit card, lenders look will want to review your credit history to decide whether you’re a safe credit risk. So you should be aware of the information in your credit reports.
Your credit reports come from the three major credit bureaus – Equifax, Experian and TransUnion – and each credit bureau may show different information about your past. That’s because creditors don’t always contact all three credit bureaus.
Credit reports will show details such as your open accounts, the dates they were opened, your payment history, and any serious delinquencies or defaults. They’ll also show your employment history.
You are legally entitled to one free copy of your credit report from each bureau, once per year, which you can request through the official website AnnualCreditReport.com. When you receive your credit reports, review them carefully – occasionally, people discover mistakes on their credit reports that could hurt their credit score.
About Your Credit Score
Your credit score, which you can find in your credit report, is a single number that may vary, depending on the credit bureau. There are different types of credit scores, but the FICO Score is most common.
A FICO Score can be anywhere between 300 and 850. Given that range, some people – as many as one in five – assume that a score of 600 is good. In fact, any score between 600 and 650 is considered poor; a score lower than 600 is bad; 650 to 699 is fair; 700 to 749 is good; and anything above 750 is excellent.
If you have a low credit score, that doesn’t necessarily mean you can’t get a credit card or a car loan. But if you are able to qualify for credit or financing, your interest rates will be higher than average.
Bad Credit Means Higher Prices
People with bad credit tend to pay more for everyday items than people with good credit. For example, if you have good credit, and you need to buy a new television, you can probably qualify for in-store financing at a low interest rate. But if you have bad credit, you might have to buy your new TV from a rent-to-own store.
According to Consumer Affairs, a television with a price tag of roughly $600 to $730 would cost nearly $2,100, if you chose the rent-to-own option, with payments of $19.99 per week. And if you fall behind on payments, the store will repossess your television, and all the money you’ve paid towards the purchase price will be theirs to keep.
Credit Cards and Bad Credit
Some people end up with credit problems because of their credit card usage. And one reason is that many consumers are unaware that their “credit limit” is misleading. Your credit card may say you have a $500 limit, but if you spend more than 30 percent of that limit, your credit score may suffer.
Ideally, you want to use credit cards for only essential purchases, and pay the full balance each month. If you get into a situation where you’re making only the minimum payment each month, it’ll take a lot longer to pay off your purchases, and you’ll pay a lot more in interest over time.
There are credit card companies that offer cards for people with fair or bad credit – the catch is, these cards usually have extremely high interest rates. However, if you don’t already have credit cards, getting one now might be a way to boost your credit score. Just use your credit card to make small purchases and pay the balance in full, and you should notice your credit score improving within a year.
Repairing Your Credit
Bad credit can interfere with your ability to rent or buy a home, to get a job handling cash or to get a loan you need to pay for school or a car. But boosting your credit score just a little could help you get the credit and financing you need.
At J.D. Byrider’s several Columbus-area locations, we’re happy to answer any questions you may have about bad credit car loans. You might be surprised at what we can offer you – stop by to chat with one of our friendly financing professionals!
El Issa, E. (2017, May 24). How Costly Is Bad Credit? Many Don’t Know, Survey Shows. Retrieved from NerdWallet:
Doerer, K. (2017, May 16). 5 misconceptions that might hurt your credit score. Retrieved from PBS NewsHour: http://www.pbs.org/newshour/making-sense/5-misconceptions-might-hurt-credit-score/
Detweiler, G. (2016, Dec. 8). Just How Bad Is My Bad Credit Score? Retrieved from Credit.com: https://www.credit.com/credit-scores/what-is-a-bad-credit-score/
Abel, J. (2013, Nov. 6). Rent-to-own is an expensive way to do either. Retrieved from Consumer Affairs: https://www.consumeraffairs.com/news/rent-to-own-is-an-expensive-way-to-do-either-110613.html