FICO, the most commonly used credit-scoring model, generates scores ranging from a low of 300 to a high of 850. And Experian, one of the three major credit bureaus, defines poor credit as a score of 300 to 579. If that’s what your score looks like, you might pay more when you sign an auto loan, personal loan, or any other type of loan you end up with — that is, if you can get approved.
But getting stuck with a higher interest rate on a loan (or being denied outright) isn’t the only drawback of having poor credit. Here are a few other consequences to consider.
1. You might pay more for insurance
It makes sense that lenders would stick you with a higher interest rate on a loan with poor credit. They’re taking on the risk of loaning you money, so a higher interest rate helps make up for it.
When you buy insurance, you’re not borrowing money. Rather, you’re paying money and are getting coverage in return. However, poor credit could lead to higher premium rates for products such as homeowners coverage and life insurance.
And remember, with term life insurance, the initial premium you lock in is generally what you pay for your policy until it runs out. So it especially pays to boost your credit score before applying for life insurance.
2. You might struggle to rent a home
It’s up to individual landlords to decide what credit score requirements they want to impose on tenants. But Experian says that landlords generally prefer credit scores of 670 or above.
This doesn’t mean you absolutely won’t be able to rent a home with poor credit. But you may not get your rental of choice.
Plus, you may be subject to a larger upfront payment if your credit isn’t in good shape (for example, having to pay first and last month’s rent plus a security deposit). That could put a strain on your finances.
3. You might miss out on credit card rewards
Many credit cards could put awesome rewards or cash back in your pocket. In fact, you can check out this list of the best cash back credit cards to get a sense of the offers available.
But if your credit is poor, you may not get approved for those top offers. And that could mean missing out on the chance to earn more on the purchases you were already planning to make.
How to boost your credit score
Clearly, having poor credit could impact your finances in several negative ways. The good news, though, is that you can employ a few different tactics to give your credit score a nice boost.
First, pay all bills on time. Your payment history carries more weight than any other individual factor when calculating your credit score.
Next, try to reduce your credit card balances. This may be easier said than done. But if you’re able to whittle down what you owe, not only might you save money on interest, but you’ll also lower your credit utilization ratio. That ratio measures how much revolving credit you’re using at once. And the lower it is, the more it can help your score.
You may find that it’s easier to reduce your outstanding credit card debt by doing a balance transfer to a new card with a 0% introductory interest rate. Click here for a list of the best balance transfer cards.
Finally, review your credit report for errors. If you spot mistakes, like payments that are listed as late that you know you made on time, getting them corrected by the credit bureau that generates the report could result in a fairly quick credit score boost — and an easier time qualifying for affordable insurance or getting approved for your rental of choice.
Having poor credit can be a problem, but it’s not something you have to be stuck with forever. If you don’t want to face the above consequences, take steps to raise your credit score and open the door to more financial opportunities.