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Do-It-Yourself Credit Repair

Why You Must Take Action: The Consequences of Bad Credit

A poor credit history and a low credit score can have a devastating effect on your finances and on your lifestyle. I cannot stress enough the importance of erasing bad credit, increasing your credit score, and regularly monitoring your credit report for fraudulent activity. Your credit score creates a virtual reputation that can have far-reaching and sometimes unexpected consequences. Let's look at a few.

Increased Fees & Penalties

Falling behind on credit payments can result in late fees, over-limit fees, legal fees, repossession fees, penalty fees, deficiency payments, and default rates. In fact, creditors often charge fees even before they extend you credit based upon your credit score: you might be charged a set-up fee, a monthly maintenance fee, an annual fee, or a new customer fee.

Higher Interest Rates

The lower your credit score, the higher your interest rate—and the difference can be significant. At first glance, the differences in monthly payments in the chart below may not look significant. However, if you have a credit score between 620 and 639 you'll pay more than $110,000 in additional interest over the life of the loan than a person with a credit score above 760!

Sample of the Interest Rate on a 30-Year Fixed Mortgage for $300,000

FICO® scoreAPRMonthly payment
620-6396.993% $1,994

Even something minor like having too many account inquiries in your file, or carrying a high balance on your credit card, can drop your credit score and trigger an automatic rate increase.

Loss of Employment Opportunities

Many potential employers review your credit report to determine your suitability for hire. Why? Many people feel the way a person manages their finances is a reflection of how they handle other areas of their life, including work. They view potential employees with a bad credit history as potentially unreliable and unproductive. Conversely they view prospective employees with good credit as responsible, productive, and trustworthy.

Increased Insurance Premiums

The guys at the insurance companies who crunch numbers and look for trends will tell you there is a strong correlation between clients with bad credit and the number of reported insurance claims. The result of their findings: if you have bad credit, you'll be charged a higher premium and may even be denied insurance altogether.

Inability to Rent Property

If you have your eye on renting a new apartment, your credit history may affect the acceptance of your application. Almost without exception, landlords perform a credit check. They look for late payments, missed payments, or defaults on your credit report. To a landlord, your payment history is a good indication of how you will pay, regardless of whether you have a stable income or outstanding references.

Inability To Buy a Home

The number one indicator of financial stability and net worth is whether or not an individual owns a home. A bad credit score can keep this aspect of the American Dream permanently out of your reach.

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