Image for The Effects of Bad Credit

The Effects of Bad Credit

(6 of 10)

The Effects of Bad Credit

Having bad credit can be bad enough. It can be the result of poor financial decisions, or it can be the result of something you can’t control, such as illness. Therefore, credit should always be taken seriously.

Things To Know

  • Credit cards for those with bad credit usually have high interest rates and high fees.
  • Scammers target those with bad credit in hopes that they will act out of desperation.

Credit in general is necessary for most people who want to do the following:

  • Buy a home
  • Pay for home repairs and remodeling
  • Buy a car
  • Get a business loan
  • Get additional credit cards
  • Get personal loans
  • Get student loans
  • Rent a car or hotel
  • Buy things online
  • Get out of a bind when traveling

Some people also find credit helpful for paying big medical bills, despite having insurance.

It should be noted here that even if you have a lot of money already, you need to keep good credit. You don’t know for certain that your money will be around 5 or 10 years from now. But if your credit is good, you will at least have access to loans that can help you out.

Credit card offers are not favorable

Some credit cards target those with bad credit. These cards tend to have very high interest rates, high fees for late payments and going over the credit limit, and other fees for things like setting up the account, getting a credit limit increase, and simply for having the card (the annual fee). Those who are not careful can find themselves back in the same situation they were in earlier.

You might be tempted to try prepaid cards. While they can be useful at times, they do not report to credit bureaus because they are not credit products. Your efforts at building up your credit with these cards will come to nil.

You’re being marketed to by scammers

If you have bad credit, scammers might target you in hopes that you will get desperate and not do your necessary homework. They might promise you a guaranteed loan without checking your credit history or income, and they might charge you a fee to "process" the guaranteed loan—and then they’ll disappear if you actually send the money to them. In reality, it is illegal to promise you money in exchange for a fee.

You may need co-signers for loans in the future

If you have bad credit, you can usually get a loan or credit card if someone with good credit cosigns the application. This person agrees to pay the debt if you should default on it. A person thinking about becoming a co-signer might do well to think long and hard about it, because if you default, the default will show up on the cosigner’s credit history. This can ruin relationships.