What is so bad about my bad credit?

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Have you missed payments on your loans? Are you paying your credit card late? Do you wear big sales? Have you ever filed for bankruptcy?

You could have bad credit.

Bad credit tells lenders that you are unlikely to pay off your debts. Equifax, Experian, and TransUnion rating agencies give you a credit score based on your financial history. Anything over 700 is generally considered good.

But a credit score below 600? It’s “bad credit,” according to Douglas Boneparth, a financial advisor at Bone Fide Wealth.

What’s so bad about bad credit?

Credit cards, mortgages and bank loans can be hard to find with a low credit score.

According to Boneparth, a credit score below 600 can take many of the best rates off the table. Sometimes you won’t be able to get a line of credit, and some of the more popular cards, including Chase Freedom, Bank of America Premium Rewards, and Citi Double Cash, would be harder to get with a bad score.

You will pay higher interest rates and premiums on financial transactions. This translates into higher costs for you.

It is not uncommon for interest rates on credit cards to reach as high as 22% and auto loans to as high as 15%.

“These higher interest rates can run into the thousands of dollars,” says Ashley Dull, vertical finance manager at Digital Brands, Inc.

Auto insurance is also based on credit scores, which are used to set rates in many states. Lower credit scores lead to higher premiums.

Employers won’t hire you and landlords won’t hire you with bad credit history.

By federal law, an employer can view your credit history, which shows debt, loans, credit accounts, and more. A survey by the Society for Human Resources Management, a network of human resources professionals, found that 47% of employers perform credit checks.

As more employers check credit histories, Dull says financial irresponsibility can put a candidate at a disadvantage when compared to others with similar qualifications. Zoe Argento, an employment and employment lawyer at Littler Mendelson, agrees – to some extent.

“This tends to be more likely in the case of a job that involves significant fiduciary responsibility, for example, authorization to sign on the company’s bank account,” Argento explains.

She adds that if an employer is considering not hiring someone because of their credit history, the employer is responsible for providing notice and a copy of the report. More often than not, however, employers simply use a credit history to check your education and work history. Landlords do the same to determine if you’ll be able to pay next month’s rent.

What can I do to fix this problem?

It will take more than one missed payment to be criticized by these financial setbacks. However, a pattern of missing payments, maxing out credit cards, and living beyond your means can waste a bit of your time, especially when you’re in your twenties trying to live for yourself.

A bad credit doesn’t have to follow you like the plague, it can be remedied.

“The best advice I can give to anyone about maintaining a good credit rating is to always pay your bills on time,” says Dull.

The length of your credit history will have an impact on your score, so applying for a new card to shop for the holidays may not be the best solution. Those with longer credit histories tend to have higher scores.

The amount you charge on a credit card also makes a difference. Start living within your means by budgeting, according to Andrea Woroch, an expert in money saving. Keeping your credit usage low usually leads to higher scores than maximizing cards.

“A credit card can help you increase your credit, but it’s important not to overdo it,” says Woroch. “You should never use more than 30% of your available credit. Once you exceed this percentage, your credit score will be adversely affected.”

CNNMoney (New York) First published on November 9, 2017: 10:15 a.m.ET

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About Nereida Nystrom

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