There are plenty of places in the world where the quality of your life and your standard of living are not dependent on the number of your credit score. The United States is not one of those places. Not only it is difficult to get car loans, student loans, and home mortgage loans, and credit cards with bad credit, it can also be difficult to get good rental housing, a bank account, a cellphone, electricity, and even a job if you have bad credit.
According to the National Bankruptcy Research Center, plenty of American families are finding out first hand how difficult American life can be when you have a bad credit score in a credit-obsessed society after 1.41 million adults filed for bankruptcy in 2009. But that number is small compared to the estimated number of Americans who are not bankrupt, but still have a bad credit history. The fallout of the Great Recession, chronic unemployment, Ponzi schemes, banking failures, bailouts, and great big real estate bubble burst is that more than 100 million Americans now have negative entries on their credit report, and a diminished lifestyle because of it.
Having a low credit score doesn’t just mean that you can’t go on shopping sprees with your American Express Black card. Most Americans are unaware of the many ways that bad credit can negatively affect their lives:
- According to a Society for Human Resource Management (SHRM) study, six out of ten private employers check credit histories of job applicants and consider those scores when making hiring decisions. Thirteen percent consider credit scores even for employees who won’t have any financial or money-handling responsibilities or any access to sensitive information.
- Although federal law prohibits an employer from using bankruptcy as a reason for not hiring, for firing, or for denying a promotion, 25% of employers admitted in a SHRM study that they have done so.
- More than 90% of auto insurance companies use credit score information to determine premiums. The lower your credit score, the more it will cost you to drive a car.
- Homeowner’s insurance premiums for people with bad credit will be higher too, with the rationale that people with bad credit do not maintain their property as well as people with good credit.
- Not only will utility and cellphone companies require people with bad credit to pay a deposit for services, they will often charge a higher price for those services as well.
As credit scores are factored into more and more aspects of daily living, a low credit score no longer just means that you have bad money management skills, it’s starting to mean that you also have bad character, and you only deserve a second-class life.
Nobody knows better about the detrimental effects of bad credit on everyday life than Geoff Williams. Not only is he a personal finance writer for media outlets like AOL, Bankrate.com, and Consumer Reports, he is also one of the millions of Americans who got consumed by debt and declared bankruptcy. The book that he co-authored, “Living Well With Bad Credit” is based on both his professional research and his personal experience.
These days Williams considers himself to be a bad credit expert not because he wrote a book about it, but because he has survived the many consequences of bad credit and lived to write about it. His conclusion? Living with bad credit is different, but it doesn’t have to be bad, if you have a good set of strategies.
“The truth that the banks and credit card agencies don’t want you to know is that you can live an awesome fun, fulfilling life with a very low credit score,” Williams wrote in his book. “The Land of Bad Credit (LBC) should be no more than a temporary stop on the way to a better place. Think of it as a twelve-hour layover in Cleveland on your way to Maui” Williams writes in his book, along with co-author Chris Ballish.
While banks and credit card companies don’t like people with bad credit, they do like people to stay in debt. One of the reasons the U.S. economy is recovering slowly is because it is dependent on consumer spending. But consumers can’t afford to do a whole lot of spending without credit, and 50% of the population no longer qualifies for that credit. It is a sad conundrum that prosperity cannot be restored until lenders can find a way to saddle consumers with more debt.
Economists were encouraged when consumer debt rose $1.95 billion in March, 2010, which was only the second monthly increase in consumer debt in fourteen months. But isn’t it ironic (or scary) that what’s bad for personal finances is seen as being good for the economy?
For the half of the American population that is not taking on more debt because their bad credit scores will not allow them to, the challenge is to create a good lifestyle for themselves without the credit crutch. Some of the strategies that Williams and Balish give for confronting bad credit roadblocks in their book include the following.
- Bad Credit and Banks: If you’re having trouble getting a bank account, you can enroll yourself in the ChexSystems Second Chance program, which will allow you to reverse your bad banking reputation.
- Bad Credit and Job Hunting: If you think you’re getting turned down for jobs because of bad credit, consider explaining your credit situation with your potential employer even before it becomes an issue. Once an employer gets a look at your credit report, they may make hiring decisions before you ever get the opportunity to explain yourself unless you bring it up first.
- Bad Credit, Mortgage Loans and Housing: If you’re having trouble finding a place to live, looking for places that are being rented or leased by individuals, or sold with owner financing. Individuals are often willing to overlook the past in ways that corporate policies never will.
- Bad Credit and Car Loans: If you need transportation, look into car share, casual carpooling, long-term rentals, and mass transit. To purchase a car, consider finding an individual seller who will keep the title and allow you to make payments directly to them, instead of a bad credit auto loan company that will charge an exorbitant interest rate.
- Bad Credit and Traveling: If you’re having trouble planning a vacation because hotels and car rental companies need credit cards, consider an all-inclusive package that you can pre-pay ahead of time. For business trips, use a debit card and make sure there is enough cash in your checking account to cover the deposits hotels and car companies will require.
- Bad Credit Repair and Debt Desperation: If you are desperate to save or fix your credit, you are a target for growing number of financial scams. Consider never making a financial decision from a place of desperation.
There are many negative realities in living with bad credit. But one positive aspect about having bad credit in 2010 is that as the number of people with bad credit grows, the stigma attached to it is shifting, and the negative stereotypes are fading. It’s becoming clear that people with bad credit are not necessarily bad people. If it took a global economic meltdown for that to become clear, then the Great Recession wasn’t all bad after all.
More About Living With Bad Credit:
- Read an excerpt of “Living Well With Bad Credit”
- Follow the Bad Credit Blog
- Time Magazine: Bad Credit Advice