Bad credit can be more than a hassle, or an annoying inconvenience. It can be a dream killer; stopping individuals from achieving their own version of the American Dream. Here are five dreams low credit scores can demolish.
1. Buying a Home
A decade and a half ago Bart didn’t think he’d be able to buy a home. His former spouse had a lot of debt and together they ended up filing for bankruptcy after she became ill. “There was no way we could get a mortgage,” he says. “It was really frustrating,” he said. “[It] felt hopeless to ever have good credit again, especially knowing it would be on my credit for years into the future.”
After having a baby, “Ted” (not his real name) says his wife “got mixed up on some medical bills and had a few late payments.” They’ve put their dream of buying a home on hold.
“Credit issues are the number one dream killer when it comes to getting a mortgage,” says Joseph Kelly, mortgage expert and president of ArcLoan.com. “No matter what your income or assets, if your scores are low, they will either prevent you from being approved or cost you significantly in either rate or price,” he says
2. Starting a Business
“So I have a passion to start my own food truck,” says reddit user “ThePerfectBeard.” “Problem is the startup cost and permits are ridiculously expensive. I never seem to be able to get my life on track when it comes to credit…I know it’s going to take a while to fix the damage I did to my credit, but I’m going to feel like a complete waste of space if I don’t follow my dream and get this thing off the ground. Any suggestions on where to start repairing my credit and possibly getting a small business loan with bad credit?”
If you don’t have cash (or friends and family willing to lend it to you), starting a business may seem out of reach. Many small business loans require at least decent personal credit scores and they may check business credit scores as well. Personal credit scores in the mid-600s or higher are often needed to qualify for loans that do check credit. There are small business loans available for those with bad credit, but the rates may be higher or loan amounts may be smaller.
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3. Getting Married
Reddit user “Diamondowl” says she and her boyfriend of three years have been “joking” about getting married, but she’s worried about how his bad credit could affect hers. She said he has “terrible” credit from a time when he and his ex went through a “rough patch.” She asked, “If we were to get married, would his bad credit impact me…?”
Bad credit can extend an engagement indefinitely — or even cause a breakup — for a variety of reasons. Individuals like Diamondowl may worry about whether they will be financially responsible going forward, and even end up picking up the tab on unpaid debts. They may also worry about getting collection calls, and in fact, collectors are allowed to discuss debt with the debtor’s spouse.
4. Driving a New Vehicle
“Lynn” would really like to buy a truck. He’s renovating his house and with a truck, “it would be way easier to haul garbage to the dump, buy lumber from Home Depot,” and transport the other supplies he needs. But even though he has a good job and steady income, there’s one thing holding him back: his credit. Lynn declared bankruptcy three years ago, mostly due to medical debt. And recently a billing snafu led to a collection account that he’s trying to get removed from his credit reports. In the meantime, he’s driving a car that’s in his grandmother’s name. He’s upside down on it, though, and between that and the interest rates he’s being quoted for a new loan, his payments would simply be too high.
The truck will have to wait.
Ted’s credit scores are lower than he’d like because he put some bills on credit cards last year when he was in between jobs. A high debt usage ratio is bringing down his scores but he says he is planning to use his tax refund to pay down those balances so he can purchase a car.
While it may be possible to get a car or truck with low credit scores, as Lynn discovered, interest rates can be very high, which in turn make payment unaffordable.
5. Landing a Great Job
Another Reddit user who goes by “deep_in_debt,” was turned down for a job because of credit: “I recently applied for a compliance job in California with a small bank, and was offered the position, but denied due to my bad credit history.” Another Reddit user, “Fall_Pandora,” could not get rehired for a previous position and described having trouble finding another job due to credit problems. “I’ve put in what feels like a million applications and my unemployment is running out.”
Employers often check credit reports and poor credit can keep you from getting a job you want and need. Specifically, financial jobs or government jobs that require security clearances or deal with financial accounts use credit checks to ensure the employee won’t be susceptible to blackmail or other kinds of undue influence. Others use credit checks as a stand-in for background checks. But it can be a vicious circle: you can’t get a job due to your credit, and as a result you fall behind on a more bills, and that makes things worse.
Don’t Let Dreams Die
Don’t let bad credit kill your dreams. Bad credit doesn’t last forever and in the meantime you can take steps to address the issues that may be bringing yours down. The first step is to know where you stand. You can check your credit reports for free at AnnualCreditReport.com and get your personal and business credit scores for free on Nav.com.)
Today, Bart’s credit is much better, though he said it took him quite a bit of time to get there. He is enjoying the benefits that brings. He has reward credit cards that earn him perks like frequent flier miles and upgrades. He was also able to buy a house and recently refinanced it; the value has increased considerably. His stronger credit scores mean “we were able to build wealth and hopefully freedom in the future,” he says. “There is a lot of confidence that you get when you know you can just go into your local credit union and get a prequal on a car before you even go shopping, and the rate is going to be really low,” he says, adding “(it) gives you a lot more power.”
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