We all know that bad credit shows up on the FICO score, raising interest rates or putting loans out of reach. But the damage isn’t just confined to your credit score. Here are some unexpected ways that bad credit can come back to bite you.
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Employers can buy a “consumer report” from a credit reporting agency. The report doesn’t include your credit score, but does include a lot of information you wouldn’t expect: your driving and criminal records, as well as interviews with your family, friends, neighbors and known associates. And if you went bankrupt more than seven years ago and your salary tops $75,000, the reporting agency can divulge your credit history.
On the bright side, employers must provide written notification, and receive written consent from the employee, before buying the report. And in the event of a negative decision based on the report, the employer must promptly provide the negative report to the employee along with details about the agency that furnished the negative report.
Insurance companies have determined that people with good credit scores are less likely to end up in accidents that leave the insurers on the hook. Only four states (California, Hawaii, Maryland and Massachusetts) fully or partially ban insurers from using your credit score when determining insurance rates. Says June Holmes of the Property Casualty Insurers Association of America, “A specific high or low [credit] score will offer strong evidence as to the likelihood of that person filing an insurance claim.
Being able to make this distinction regarding risk of loss allows insurers to charge each individual an appropriate rate.” The bottom line: insurers have found that your credit score is a good predictor of your insurance risk, and they’ll charge you accordingly. Bad credit, unfortunately, means high premiums.
This one takes a little explaining—on the surface, there’s no reason for why your credit should affect your phone bill. Bear with us. There are two types of cell phones: prepaid and postpaid. As you might have guessed from the name, you pay for you minutes up front with a prepaid plan, and for all the minutes you used in a month with a postpaid plan. When a cell phone company offers a postpaid plan, however, it takes the chance that you won’t be able to pay. A bad or limited credit history may make the provider think twice about a postpaid plan.
This disadvantage hits hard when buying a new phone. Many carriers subsidize a phone upfront (a $500 smartphone partnered with a contract costs only $99, because they know they’ll recoup the costs in two years). If the carrier isn’t confident that you’ll pay for those two years, you may pay full price for the phone.
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Apartment Rentals and Utilities
Landlords check your credit score when they approve you. Your credit history may show up in higher rent, or even being denied the housing outright. While all landlords have different standards, you can minimize your disadvantage by providing recommendations or enlisting a co-signer. Like with a prepaid cell phone plan, you generally pay for your utilities after using them. Some utility companies take the same route as cell phone providers and offer pay-as-you-go plans. This is rare, however; most will require a hefty deposit from you. If you are denied utilities because of your credit score, you have a right to know. The utility company must provide you a letter detailing the reason that you were rejected.
Have a story about how you or someone you know was blindsided by bad credit? Leave a comment below.
Tim Chen is the founder and CEO of NerdWallet.com, a web site to help consumers compare rewards credit cards.