The Price You Pay: 6 Side Effects of Bad Credit

December 16, 2023 | 3 min read

Credit Saint

Written By:

Credit Saint

Ashley Davison

Reviewed By:

Ashley Davison

A credit score represents your creditworthiness. It can be the difference between financial freedom and challenging constraints. Bad credit can have a domino effect, significantly impacting various aspects of your future.

Over time, these accumulating disadvantages can create a cycle of financial hardship, making it progressively more difficult to improve your credit situation and achieve long-term financial stability. Here are 6 side effects of having a bad credit score:

1. Higher Interest Rates on Loans and Credit Cards

Bad credit often leads to higher interest rates, which means you pay more over the life of a loan. This can significantly increase the cost of borrowing. According to Experian, individuals with bad credit scores pay significantly higher interest rates on credit cards and loans, leading to increased costs over time.

2. Difficulty Getting Approved for Loans and Credit Cards

Lenders are hesitant to approve loans for individuals with poor credit history, perceiving them as high-risk borrowers. The Federal Reserve reported that about 45% of Americans have subprime credit scores, which can limit their financial opportunities. This makes it challenging to manage emergencies or large expenses which can lead to increased reliance on high-interest options, exacerbating financial strain.

3. Impact on Employment Opportunities

Some employers check credit scores during the hiring process as part of the background check process. This is very common for positions involving financial responsibilities or access to sensitive information. However, this practice varies depending on the company, the industry, and the specific job role. Having a bad credit score could be seen as a lack of responsibility and reliability.

4. Higher Insurance Premiums

Many insurance companies use credit scores as part of their risk assessment process, believing that individuals with lower credit scores are more likely to file claims. This practice is especially common in auto and homeowners insurance. As a result, having bad credit can lead to higher insurance premiums. However, the impact of credit on insurance rates can vary by company and state, as some states have restrictions on using credit scores to determine insurance premiums.

5. Difficulty Renting Apartments or Homes

Bad credit can make renting challenging, as many landlords and property management companies conduct credit checks on potential tenants. A low credit score can signal financial instability, leading them to perceive a higher risk of late or missed rent payments. Consequently, applicants with bad (or no) credit may face rejection or be required to provide a higher security deposit. In some cases, they may also request a co-signer with better credit to guarantee the lease.

6. Security Deposits on Utilities

Utility companies—like electricity, gas, and water providers—often check credit scores as part of their new customer assessment process. If your credit score is low, these companies may categorize you as a higher-risk customer and require a security deposit as a safeguard against potential missed or late payments.

Bottom Line: Bad Credit Has Consequences

The ripple effects of bad credit are far-reaching and can impede various aspects of life. It’s vital to manage credit responsibly and work towards improving your credit score. Regular monitoring, responsible spending, and timely bill payments are key steps in this journey. If you already have bad credit, learn more about how to improve your situation or seek help from a reputable credit repair company.

Ashley Davison

Reviewed By:

Ashley Davison


Ashley is currently the Chief Compliance Officer for Credit Saint, previously the Chief Operating Officer. Ashley got into the Financial world by working as a Logistics Coordinator at Ernst & Young. Coming from a previous career in education, she is eager to teach the world everything she knows and learn everything that she doesn’t! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, a Certified Credit Score Consultant with the Credit Consultants Association of America, UDAAP certified, and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.