7 Consequences of Having a Low Credit Score

Lamine Zarrad
March 12, 2022
4 mins

If you have a spotty credit history, you’re not alone – nearly one in three Americans have scores categorized as “very poor” or “fair.” Our credit system makes it difficult to recover from past borrowing blunders, which keeps millions of Americans from accessing the benefits of good credit.

It might seem easier to live life without a credit card than to fight an uphill battle to improve your score – but the consequences of having a low credit score are bigger than you might think.

1. Fewer (and lower quality) credit-building opportunities

Your credit score signals to banks and lenders how likely you are to pay your debts responsibly. If you have a shaky credit history, you’re less likely to be approved by reputable financial institutions with strict vetting standards.

Unfortunately, low-barrier credit options are often far riskier – like payday loans with sky-high interest rates. 

2. You’ll pay higher interest rates

If you do get approved for a loan or credit credit, you’ll pay a higher interest rate. That’s because lenders use interest rates to reduce the risk of borrowing to someone with poor credit.

This means you’ll pay more over the lifetime of your loan and for your monthly credit card payments. 

3. You’ll have difficulty financing your dreams

Whether you want to start a small business or purchase your first home, loans can help turn your dreams into reality. But when it comes to major lending, you’re less likely to qualify for the most affordable options with poor credit.

Instead, you’ll be limited to high-interest loans or large security deposits that can burden you financially. 

4. You’ll pay higher insurance premiums 

An unexpected consequence of having a low credit score? Higher insurance premiums. In the US, customers with bad credit pay nearly twice as much for auto insurance and 1.5 times more for home insurance than those with excellent credit.

That’s because most states allow credit-based scoring in these industries – and poor scores predict a higher likelihood you’ll file a claim.

5. You’ll need to put up your own cash

You credit score signals how likely you are to hold up your end of a financial agreement. When you have poor credit, merchants and service providers reduce risk by charging more up front. 

You may need to pay a security deposit for things like utilities, internet, and cell phones. You may also be limited to prepaid options for phone plans and credit cards. This increased financial burden can stretch your budget and make it harder to save for unexpected bills or big purchases.

6. Missed housing and career opportunities

Past borrowing blunders can keep you from landing your dream job or next apartment. That’s because most states allow potential employers and landlords to view your credit report during their vetting process. 

Poor credit can keep your from progressing in your career,  particularly if you’re applying for a role where you’ll manage company finances. It can also keep a landlord from handing over the keys, since a spotty credit history suggests you might not pay your rent responsibly. 

7. Locked out of long term wealth

Poor credit can also impact your ability to make and save money. You may dip into your savings to pay burdensome security deposits; have less to put away each month because of sky-high interest rates, or miss opportunities to grow your salary and career.

All these factors make it harder to build generational wealth and obtain long-term financial stability. 

8. How to remove negative items from your credit report

You can avoid the consequences of having a low credit score by taking action to improve your credit history. Missed and late payments take up to seven years to fall off your report, but carry less weight over time. That’s why it’s important to get and stay current on all of your accounts.

If you have bills in collections, contact the debt holder to settle your dues in exchange for removing the negative item. If you spot any inaccuracies, file a dispute directly with the credit bureau. 

Build credit without building debt

Poor credit makes it harder to access legitimate opportunities to improve your credit, which is why it’s hard to escape the consequences of having a low credit score. But StellarFi is on a mission to change that. 

With StellarFi, you can build credit history with rent payments, your phone bill, and even your Netflix or Amazon Prime subscription. You pay all these bills every month, you should get some credit for it!

Get started with StellarFi

Signing up is easy. The more bills you link, the more impact you’ll have on your score. Ready to check it out?


The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

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On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.