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How Bad Credit Hurts You

If you have applied for a loan or credit card lately you know how critical it is to have a good credit score. In recent years a 720 FICO score was the magic number to qualify for the best rates and terms. A 620 score would get you fairly decent rates; and below that, even though considered sub-prime, borrowers were still likely to swing a deal. But, since the mortgage meltdown, would-be borrowers have had to kiss such easy credit goodbye.

Currently, lenders have raised the bar to 740 for the best rates and terms. There is no such thing as sub-prime anymore; in fact if your score is below 580 you're likely to have a very difficult time qualifying for credit all together. We've discussed many times the importance of having good credit and how costly having bad credit can be.

Miss out on great rates

If you wanted to buy a house or wanted to refinance your current home, chances are you missed out on the lowest interest rates the nation has seen in decades. Were you one of the millions who was unable to take advantage of such great rates due to too low of a score? What would a 740 score have done to your financial longevity?

There are also other non-credit issues that your score will implicate:

Denied a place to live

Due to the housing market crash, the rental industry has gotten quite a boost. Think of the thousands of homeowners who were forced to short sale their homes or lost them to foreclosure and now need a place to live. Add to that the growing number of would-be homebuyers who have had to put their dream of owning a home on hold; since mortgage qualifications have become so difficult.

With more people competing for living space, landlords are able to be more judicious to whom they rent. Credit reports are now even more influential in the decision-making process. Your credit report says a lot about your financial habits and is a good indicator as to whether or not you'll keep your end of the lease agreement. Too many negative marks and you may be turned away. Turned down for employment.

With high unemployment rates, there is steep competition for available jobs. With several candidates to choose from employers can be more selective as to whom they hire. Experience, skills, qualifications and personality are the most influential factors; however, if these are comparable among several candidates, credit reports could be used as the deciding factor. Poor credit insinuates lack of responsibility, preoccupation with financial worries that would interfere with job performance and possibly a higher risk of theft. This may not be a fair assessment, since many financial issues are often beyond one's control and have nothing to do with work ethic and employability. But, a credit report is something concrete and tangible upon which employers can base their decision.

If you are currently in the job market and have been turned down for a job, it could have been your credit report that got in the way. If you are currently employed, there are no guarantees for how long. You need to arm yourself with as much as you can in this brutal economy.

Charged higher insurance premiums or denied a policy

Insurance companies review credit reports to determine premiums and whether or not to grant or continue a policy. A correlation has been made between credit scores and insurance claims. It appears that policy holders who have poor credit tend to submit more claims than policy holders who have good credit. More claims means more lost revenue for the insurance company. The insurance company makes up for lost revenue by charging their more risky clients a higher premium.

If your premiums have gone up in the past few months for no apparent reason, look at your credit report. If anything derogatory has appeared on your report, chances are your insurance company, who periodically reviews your credit files, caught it and raised your rates as a measure to protect themselves.