What Happens If You Have a Bad Credit Score?

Key takeaways

• Bad credit can limit your access to money, housing, cars and even jobs.
• It’s possible to get loans, credit cards and mortgages with bad credit, but you’ll pay a lot more than people with fair or good credit.
• You can use free online resources to monitor your credit or work with a professional credit counselor to improve your credit over time.

How bad credit affects you

  It’s harder to get money

Having a bad credit score makes it harder to qualify for every type of loan and credit, from personal loans to credit cards. Think of your credit score as a grade for how you handle your money. Lenders use it to determine how likely you are to make on-time payments (or pay them back at all).

If you have a FICO score below 580 or a VantageScore below 600, lenders will likely see you as a risky bet and may deny you a credit card or loan.

  It’s harder to buy or rent housing

You’ll need a credit score of at least 620 to get a conventional home loan, and even FHA loans designed for first-time homeowners require a credit score of at least 500. The credit requirements for buying a house can make it much harder for people with bad credit to get mortgages.

Your credit score can also affect whether you’re approved to rent an apartment or a house. Landlords can request to see your credit report as part of their screening process. They won’t see your actual credit score, but they’ll see whether you’ve missed payments, had accounts sent to collections or filed for bankruptcy.

  It’s harder to buy a car

There’s no universal minimum credit score you need to buy a car, but most auto loans go to borrowers with credit scores of at least 660.

You can get a bad-credit car loan, but you’ll pay much higher rates. The average rates for borrowers with scores below 600 are between 13.18% and 15.77%, compared to the 6.84% average across all borrowers. That means you could be paying twice as much money in interest on your car loan than the average person.

  More expensive loans, credit cards and insurance

It will cost you more to borrow money with a credit card or loan if you have bad credit. Lenders charge higher rates to people with lower credit scores to make up for the risk that these borrowers won’t pay them back.

You may pay more for insurance, too. Insurance companies charge drivers with bad credit an average of 77% more for car insurance. Some states currently limit or prohibit the use of credit scores in calculating car insurance quotes, including California, Hawaii, Massachusetts, Michigan, Maryland, Oregon and Utah.

  It may prevent you from getting a job

In many states, employers can legally check your credit for employment as part of their hiring process. They won’t see your three-digit credit score, but they will see how much debt you have, any accounts you have in collections and whether you’ve filed for bankruptcy.

How to improve your credit score

Your payment history and amounts owed make up 65% of your FICO score, so two of the fastest ways to improve your credit are to make on-time payments and to pay down as much debt as possible.

Getting out of debt takes time and patience. You can monitor your credit for free with a credit-monitoring service or work with a credit counselor to create a debt management plan if you need extra help.

Monitor your credit score and get personalized recommendations to improve your credit — for free — with LendingTree Spring.

Credit myths

It’s possible that your credit is suffering because you believe one of the common myths about personal finance. If that’s the case, you’re not alone — 96% of Americans believe at least one money myth.

Here are a few beliefs that could be affecting your credit score or your wallet.

  You should carry a balance on your credit card

Nearly two-thirds (65%) of Americans believe that carrying a balance on your credit card will boost your credit score — and they’re wrong. A balance won’t affect your score as long as you’re making minimum payments, but it will cost you money in interest. If you can afford it, pay off your cards on time and in full every month.

  All debt is bad debt

All debt is not created equal. Some forms of debt, like investments and student loans, can help you achieve your financial goals. This is called good debt. Unnecessary expenses, like luxury items or taking out vacation loans, are examples of bad debt. Bad debt does not help you achieve your financial goals.

  It’s bad to use a credit card

When comparing credit versus debit, a credit card comes with benefits like the ability to build your credit history, earn rewards points and take advantage of benefits and travel protections. But you’ll have to use your card the right way to get these perks (and not end up spending hundreds or thousands on interest payments).