Further Debt Implications

It's true that a bad credit rating hurts your bottom line. With it, you are going to pay a higher rate of interest than someone with a prime score. What's often overlooked is the social aspect. There is a stigma attached to it where you are looked upon as less trustworthy, unsuccessful, having character flaws or not being intelligent enough to manage your finances. It can hurt and place you in embarrassing situations. It can hinder employment prospects, promotions, getting financing and even opening a bank account.

Three Misperceptions

Success is often viewed as financial stability: a good job, a healthy bank account and a great credit score. The rationally being if you have money in the bank you must be successful in life. Living paycheck to paycheck, missing bills and all the acts associated with a bad credit rating insinuates you are a failure in life. The problem with defining success by your financial life is the lack of control. Your rating could tank with a simple clerical error areporting agency. A successful person with money can easily become sick, get in an accident or lose their job spiraling their finances out of control.

Another misperception is that it signifies a lack of intelligence. When someone with a good job doesn't pay their bills, they are not smart with money. If they only learned how to budget, they'd have a prime credit score. Many of life's challenges come with a price tag. Illness, accidents and layoffs are all out of the control of the person being affected. Any number of very smart people can have a bad  score simply due to bad circumstances.

After all, people who don't pay their bills are deadbeats, right? Very few people want to default on their obligations. No one leaves court with a smile and a high fives their attorney for being bankrupt. Still, a person with a poor history is judged as lacking in integrity or having faulty character traits for not being able to pay their bills.

How a Bad Credit Rating Hurts

Because of these views, it's easy to see just how embarrassing things can get. You go to the bank because you need money. The loan officer pulls your spotty report and sees your low rating. You are now on the hook for explaining why it is bad and persuading the bank employee to loan you money. Store clerks are actively pushing credit card applications at the point of sale. You get a discount on your purchases if you pass the check. If you don't pass, you are denied at the checkout in front of the people behind you.

Your bad credit rating affects more than just your ability to borrow money. Employers pull credit reports and scores as part of your job offer -- especially in industries that deal with sensitive or financial information. You worked hard to get an education. You aced the interview but you get a letter in the mail that you were passed over due to your bad credit rating. It could also affect your ability to get a promotion. Employers regularly screen existing employees by pulling credit reports on a regular schedule.

What about other non-credit financial products? You cannot open a checking account without a credit check. Utilities and cell phone companies use these ratings to assess deposits on your account. Your auto insurance premium evaluates your risk based on your  score.

Ratings are constantly fluctuating. Every instance of new information on your credit report changes your score. Some days it seems you just cannot get away from it. Draw up a plan of attack to improve your credit report. Start paying down your debts, establishing on-time payment habits and limiting your credit applications. As your rating improves, you'll notice a lessening impact on your social status. Just remember, you cannot define your success or value by an ever-fluctuating number that is not wholly under your control.

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