5 Ways a Bad Credit Report Can Hurt You

Credit report with a "bad" score of 540 on a desk.

(Image credit: Getty Images)

A bad credit report or low credit score can make it tough to borrow money. Dings on your credit report, like late or missed payments, can hurt your credit score. The lower your credit score, the more of a risk you’re considered to be. And the riskier borrower you are, the more you will pay in interest — if you can get a loan at all.

By tracking and keeping a score in the good range or better, consumers may qualify for one of the best rewards credit cards or other types of loans.

What is a bad credit report?

A credit report summarizes your current and closed loan accounts, your places of residence and other personal information that could be useful to lenders. A bad credit report typically shows several red flags from your past, such as a pattern of defaulting on debt payments, debt collection agency accounts, rejected loan applications, credit card advances and more.

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You can review your credit reports from the three major credit bureaus once a week for free by going to www.annualcreditreport.com. Make sure you go through this website; other websites that may show up in an online search use the promise of “free” credit reports to charge you for services or, worse, steal personal information.

What is a bad credit score?

Two companies control the market for credit scores: FICO and VantageScore. Each company will assign you a credit score, usually between 300 and 850. They also have slightly different definitions of what constitutes a good credit score or a bad one.

FICO considers a score of 300 to 579 as "bad," and 580 to 669 as "fair."
VantageScore rates a score of 300 to 499 as "very poor," and 500 to 600 as "poor."

You can check your FICO credit score for free in several ways. The easiest way is to log in to your bank or credit card account, as many financial institutions provide FICO scores for free. To check your VantageScore, sign up for Chase Bank’s free credit monitoring service, Credit Journey, or see other programs offered by VantageScore partners.

FICO boasts that 90% of top lenders rely on their scores, and consumers generally need to focus on their FICO score first. Credit card companies, however, will often look at both FICO and VantageScores.

Lenders aren’t the only ones who are looking at your credit report. You might be surprised how much of an impact bad credit can have on many aspects of your life. Here are five examples of how you might be affected.

1. Pay more for insurance

Insurance companies consider credit reports and scores when pricing coverage for auto and homeowner’s insurance, says credit expert John Ulzheimer, a contributor to experian.com and president of The Ulzheimer Group, LLC. Insurers typically offer discounts for those with high scores. If you don’t meet the insurer’s threshold (which varies from company to company), you’ll miss out on the good credit discount and pay higher rates as a result. Even worse, poor credit can lead to denial of coverage, Ulzheimer says.

2. Utilities might require a deposit

Public utilities won’t deny services except in extreme situations, Ulzheimer says, but they can insist on deposits. The decision to charge a deposit (or waive a deposit requirement) is largely based on a customer’s credit report, he says. Remember, utilities are billing you for water, gas, electricity and other services based on the actual amount used, so they need assurances that you can be trusted to pay for what you've already consumed.

Note that if your spouse has a history of late payments to utilities, you also may be required to pay a deposit, according to the Federal Trade Commission.

3. Trouble getting a cell phone

Wireless carriers will check your credit if you want to buy a cell phone with a service contract, says financial services and fintech consultant Gerri Detweiler. If your score is low, it’s an indication that you haven’t handled credit well — and, therefore, might not be a reliable customer. So wireless carriers might charge you a deposit (or a higher deposit than what they charge customers with better credit), she says. Or they might limit your options to the most basic service or a pre-paid phone plan. You could run into a similar problem with cable TV and Internet providers, Ulzheimer says.

4. Get turned down for a job

Credit history isn’t the most important factor employers weigh when deciding whether to hire someone, but it can play a role. About half of U.S. employers rely on a credit report or related financial checks of prospective hires, according to a 2021 report by the hr.research Institute. While employers cannot see your credit score, they can examine your credit report to check for late payments, involvement of collections agencies, and other issues. Employers are required to ask your permission before running a soft credit report pull, and some states limit what employers can see.

5. Harder to get a lease or mortgage

Raising your credit score could lower your mortgage rate. Just raising your score by 20 points could save you thousands of dollars. Home buyers need a credit score of 740 or more to get the best rates on a mortgage, Detweiler says. Not only will your rate be higher if your score is below 640, she says, but your loan options will be limited, which might put home buying out of reach.

Property management companies screen prospective tenants before handing over the keys to an apartment or house, Ulzheimer says. If you have poor credit, you might have to pay a bigger deposit. Or you might have your lease application denied, he says.

Award-winning journalist, speaker, family finance expert, and author of Mom and Dad, We Need to Talk.

Cameron Huddleston wrote the daily "Kip Tips" column for Kiplinger.com. She joined Kiplinger in 2001 after graduating from American University with an MA in economic journalism.

With contributions from

Ellen B. KennedyRetirement Editor, Kiplinger.com