Four Unexpected Situations Where Bad Credit Hurts

If you aren’t planning on getting a big loan in the next couple of years, you probably shouldn’t be worried about your credit score right? Wrong.

We all know that your credit score will affect your loans. A higher score means you will get a lower rate on mortgages, car loans, and credit cards. What if you don’t plan on getting a mortgage or a car loan? Does it matter what your score is? Yes, it does. Here are four unexpected situations where bad credit or an inaccurate report can really hurt you.

Prospective Employers: Employers are allowed to use your credit report in hiring, firing , and promotion decisions. Federal law prohibits employers from making adverse decisions if you file bankruptcy (Title 11, Bankruptcy, of the U.S. Code), but every other negative item can be used against you. If you defaulted on a loan or missed a payment, then an employer can use that information against you. The government has been known to run routine background checks which include criminal history and credit history. If you have a low credit score, you could be considered a security risk because you could be more susceptible to bribery or blackmail. Credit history information is most often used for sensitive positions and those that deal directly with money. Your credit history could also be used to confirm other facts you presented about yourself. If you said you spent four years working for a firm in California but your credit history doesn’t show residency in California, it could be a problem for you.

Landlords: This one is a little less unexpected because landlords routinely run credit checks to determine whether you’ll be able to pay the rent each month. Credit reports will list all your late payments and evictions, which are the two categories landlords are most concerned about. It will also give a good indication of the renter’s debt burden and debt profile, which can help a landlord decide which renter is most likely to cause the fewest number of headaches.

Insurance Companies: Insurance companies will use your credit score in determining your premiums because their actuaries have determined a lower credit score leads to higher claims. There are theories as to why this is true but the statistical data supports this policy. The lower your score, the higher your premiums will be. This applies to all insurance policies from auto to home to renters. It will also apply to medical if you seek out independent health insurance but not if you get it through your employer (it’s because as an employee you are treated as part of a “class,” rather than an individual).

Cell Phones: If you have bad credit and want to get a cell phone, you may find that the cell phone company will want you to put down a deposit before they will offer you service. You will also lose access to the multitude of special offers and free equipment many companies offer for new contracts. The reason companies do this is because your score has indicated you have difficulty meeting your obligations. Cell phones are essentially “loaning” you the cost of a month’s service and if you have low or bad credit, they don’t trust that you’ll pay on time, so they require a deposit. This explanation is true for other monthly service type products like cable television and internet service.

As you can see, your credit history and your credit score can have an impact on your life even if you don’t plan on getting a loan. This is why it’s critically important to regularly check your credit history for inaccuracies and correct them when you see them. The only place you can get a free copy of your credit report is at the government sponsored

Have you ever had a credit report error come back to haunt in a way you never expected?

Jim writes about personal finance at his personal finance blog, Bargaineering.

(Photo: R_Adam_G)


Edit Your Comment

  1. Plates says:

    With the point about Prospective Employers, there are many situations where someone could work for a firm in one state and live in another. There are many people who live in New Jersey an work in New York. Salesmen can work for a company in one state and live in another far away, as can people who telecommute.

  2. wcnghj says:

    Remember, do NOT buy scores when going through Annual Credit report, lenders don’t even have access to those.

    Use for scores.

  3. Jeff Katz says:

    Remember, if you want your free transunion scores, go to Not quite the same as fico, but usually within 30 points.

    • methamp says:

      @Jeff Katz: and also remember that Experian will no longer allow Fair Isaac (the FICO people) access to their database for the purposes of calculating a FICO score, so consumers will only have access to their Equifax and Transunion FICO scores. And also remember that FICO 08 is about to take effect and consumers may not have access to that updated FICO score for *years.* The current FICO scores you purchase from most likely will not be the score that lenders will receive, since most of them will be operating off of the FICO 08 algorithm.

  4. Franknbeans says:

    Also, if you are signing up for DirecTV or DISH they run your credit and if it is bad you have to pay a deposit (at least 200) and you don’t get the same new customer deals.

  5. RandaPanda says:

    I don’t get why people are so concerned about getting a credit report for free. I may be poor, but I’d rather pay to get my COMPLETELY ACCURATE credit report than go to some sketchy website that may or may not accurately report my credit.

    Becuase honestly, when it comes down to it, being off by 30 points could be the difference between a good and bad interest rate on a loan, or no deposit for a cell phone provider versus a $500 deposit.

    • Stephanie Young says:

      @RandaPanda0283: Your accurate credit report is free.

      The 30 points off was a score you can get. Not your report. Your report doesn’t show your score, and is free, always. If you pay for your report you’re overpaying or signing up for a “membership program” (or you want your report more than 3 times a year, which is overkill anyway).

      • RandaPanda says:

        @Stephanie Young: I’ve been a victim of identity theft in the past. Still digging my way out of it. So, I do pay for my credit report. I’d still rather pay to veiw it quarterly rather than get it free and it possibly be off.

        *shrugs* but that’s just me.

        • baquwards says:


          reports are reports I don’t know of anybody that doesn’t pull them directly from the same exact database, they may be formatted slightly different but they all contain the same information. The scores are what varies widely because they all have their own algorithms. Who are you paying for your reports? I have used different services and the information has always been exactly the same as the reports directly from the bureaus.

        • gauden44 says:

          @RandaPanda0283: You can get your credit report for free once a year for each of the 3 bureaus. Check out:


  6. captadam says:

    Woo, my photo was used! I took that with the Consumerist in mind.

  7. gnimsh says:

    Many car rental companies also run a credit check on renters using a debit card. I worked at Budget and know this firsthand, and while it was mainly a problem for poor people (their cards were simply declined) other cards went through but customers were not told. This pissed them off because they were trying to get a home loan or something similar, and this credit check brought down their scores. So, if you rent a car, check in with a credit card, and switch it to your debit card when you pay. This also will avoid holds on your checking account!

  8. Joey2305 says:

    Speaking as a federal personnel security specialist, I can tell you with some certainty that we do not use your credit score for security determination, though I cannot speak for every agency. However, we will look at everything else: late payments, charge-offs, collection accounts, etc. Honestly, when credit reports are run, a copy of the credit score is not even included. Remember if your applying for a security clearance, you sign a release given the feds access to your credit report, make sure you know what is on it.

  9. floraposte says:

    @Plates: I don’t think the point is that nobody could legitimately do it, it’s that a prospective employer checking your credit history might consider that practice alarming if s/he doesn’t know why.

  10. bohemian says:

    With employers credit checks can be used to violate employer limits on poking into your medical history. If you have a late pay or a bad debt with say “XYZ Oncologists” on your credit employers will know that you or someone in your family had cancer. I could see employers using that to toss someone as a potential employee.

    I would love to see more ability by consumers to background and possibly credit check landlords or employers (or key management people your working directly under). Those relationships really are a two way street. I had two bad landlord experiences both involved the landlords not having enough personal money available to make needed major repairs. Having a home become uninhabitable due to your landlord’s finances can seriously throw YOUR life into chaos. Had I known either of these people were not financially healthy I would not have rented from them.

    Same goes for business owners or key management your going to be working under. I found out after the fact that a manager I was working under had a horrible track record. She had job hopped from company to company as she was discovered to be incompetent or all of her under staff quit. Your putting a big piece of your life at stake working for someone.

    • RocktheDebit says:

      @bohemian: “If you have a late pay or a bad debt with say “XYZ Oncologists” on your credit employers will know that you or someone in your family had cancer”

      They can’t see that; they only see “medical provider”. When you order your own credit score, you can see those, but third parties can’t.

  11. Maulleigh says:

    Landlords: except in New York where even if you have stellar credit, they still don’t believe you. I have good credit but I still had to get my dad to co-sign to rent an apartment. And I’m over thirty!

  12. CyrusOpeth says:

    So get a prepaid cell phone. Sheesh. For example, PagePlus Cellular has superb deals, and uses the Verizon network. No need for contracts, credit checks, anal probes, nothing. Buy a phone (cheap at Wal Mart), buy minutes (cheap), use them. Rinse, repeat.

    And if you want unlimited calling, knock yourself out. They offer that, too.

    Really, the whole US postpaid cell phone market is screwed up.

    • gauden44 says:

      @CyrusOpeth: I don’t think those third-party prepaid providers get access to the entire network.

      Even T-Mobile’s own prepaid plan doesn’t get all of the network.

  13. paulvzo says:

    Not all states use consumer credit to determine auto insurance rates, although I don’t know which states are left. Colorado did not permit it until, I think, 2004 when the Republicans passed a bill after they got off of their kneepads in front of the insurance industry there. My rates on renewal immediately jumped although I was the same good, no accident driver. They care more about my FICO than 45 years with one not at fault accident in 1988.

    While there may be actuarial evidence that low credit ratings tend to result in more accidents, it’s much more a money maker than a real world, major influence factor.

    I hate insurance companies, and this might be the least of my justification to.

    • Powerlurker says:


      The most likely explanation for why low credit scores tend to be correlated with more claims that I’ve heard is that insurance companies don’t particularly care how likely you are to get into an accident, they just care how likely you are to GENERATE A CLAIM. In other words, people in better financial situations (and thus with higher credit scores) are more likely to pay for minor incidents out of pocket to avoid the (more expensive) hit to their insurance rates while someone in a more precarious financial situation will have to file a claim with their insurance.

      • OwenKlient says:

        @Powerlurker: I HATE insurance companies, too. It seems that they think our responsibility is to just give them money every month or year without them ever having to pay a claim. People who are able to pay are doubly hurt– they pay the insurance companies regularly, then pay out of pocket when there is an accident. It’s not “insurance” if customers are afraid to use it when they need it.

        I hate banks, too. I have never understood giving less credit-worthy people a higher interest rate. It only *increases* companies’ risk by making it harder for customers to pay. I personally think this should be made illegal. Either don’t extend credit or require a deposit for people whose credit is shaky.

    • vermontwriter says:

      @paulvzo: Insurance companies do use credit scores in my state. I am generally disgusted by insurance. My credit score’s certain to take a beating this year with credit card companies closing untouched accounts and lowering lines of credits as far as they can which maxed out my husband’s card.

      Another thing I learned from Allstate – if you are in an accident that is NOT your fault and you file the claim against another driver, that can count against you. In a parking lot, a truck backed into me. His bed was filled with lawn mowers and he couldn’t see behind him. That’s what he admitted to both the police and myself, so they ticketed him and told me to file a claim against his insurance for the damages. He was with Allstate as well. A couple months later, we bought a new car and the rate we were quoted shocked me. It was 4 times higher with the second car. I asked why and was told by my Allstate agent that because I had the balls to file a claim against the other driver, it put me in a higher risk category, even though the accident was not my fault in any way. This was the first claim I’d ever filed, so I dropped Allstate and went for a much lower local company.

  14. kwsventures says:

    Deadbeats beware. What goes around comes around.

  15. Spider Jerusalem says:

    California is actually considering banning employers from considering credit score in the hiring process. CA has some of the most arbitrary employment laws in the country, so this would be a major step in the right direction.

  16. Dan Seitz says:

    The way you’re presenting credit histories in hiring and termination is a bit misleading. It is true that if you are working in an industry such as banking or jewelry sales, something where you could steal quite a bit of money and disappear, they will run your credit report, and a bad one will be a factor. But it’s usually part of a larger background check for those roles, and the whole background is considered, not just the credit report.

    Most industries outside of government, though, don’t go to the time or expense unless it’s for very senior roles. It’s just not worth it, especially if there’s not much for the employee to steal.

    As far as terminations, hell no. That never happens outside of government and even then probably only with prior cause. They need your informed consent to run your credit, and firing an employee over their personal life, unless you’ve explicitly informed them at the start of the role that that was a possibility, is just begging for a long and painful wrongful termination suit. It’s much easier and safer, legally speaking, to terminate an employee for violating workplace protocol or for performance reasons.

    • Anonymous says:

      @Dan Seitz: I was just offered a job with Flextronics, the company that handles employment for Verizon Wireless employess in New York State. Because of previous experience with Verizon and other companies doing tech support, as well as a great interview, they offered me the job on the spot. And not only that, they offered a dollar more an hour than their usual top starting rate, a fact which they swore me to secrecy about.

      A drug test and a background check were required. I submitted to the drug test the same day, and passed of course. The background check took two weeks to complete.

      The employer, Flextronics, dragged out my offer for more than a month, the manager telling me again and again the job would start the following Monday, and to “just sit tight”. Week after week I would call, naturally anxious to start working and collecting a paycheck.

      Inexplicably, they stopped returning my calls, and just the other day I see the job advertised again online. What do I get in the mail? The report from A-Check America, Inc., telling me that for reasons related to my “consumer report” I was ineligible for hire.

      The long and the short of it: because I’ve been unemployed now for nearly five months, I have a half-dozen credit cards late or over the limit. The background check people sent a thick stack that amounted to their full data on me. Page after page of late credit payments, overdrafts, etc.

      So I got dicked around for weeks, never got a straight answer about whether there was a problem or what it was, lost valuable weeks when I could have been out looking — all because of a credit report.

  17. the_wiggle says:

    the pimping out of the credit score (much like the social security# – rant for another day) for all of the above are why there desperately needs to be an overhaul of the credit scoring industry. there’s multiple types of reports with multiple scores for multiple types of situations far beyond the original Big 3; with diddly squat for accountability. yet consumers have little ease of access to anything other than the Big 3; with even less leverage at effective, user friendly corrections & protection of such a critical component of their life.

  18. mac-phisto says:

    -you may have trouble opening a bank account if you have bad credit.

    -i’ve noticed stores with “shopper’s cards” sometimes run credit checks as part of the sign-up process. READ CAREFULLY!

    -casinos. the house will run a credit check if you choose to gamble with their money.

    -can anyone pipe in on club memberships (costco’s sam’s, etc.)? it’s been awhile since i had a membership, so i can’t remember if they’re running credit or not.

    something else to keep in mind – companies have the right to not provide you with service if you neglected to pay them in the past even if it’s past the statute of limitations to collect on the debt. so don’t expect sprint to offer you service if you didn’t pay that ETF when they pissed you off back in 2000.

    i have a friend whose parents used his social to sign up for cable, electric, gas, etc. when he was 12 & now he has a hard time getting services anywhere even though he’s in his mid-twenties.

    • Trai_Dep says:

      @mac-phisto: I’m surprised you’re not a Costco member. They’re yummy! :)

      • mac-phisto says:

        @Trai_Dep: i would be, but the closest one is 30 minutes away & i don’t really have much need to stock up on food – i usually buy fresh. it may cost me a bit more, but i think it saves me money overall b/c i’m not throwing food away that i forget about. i have a bad habit of forgetting food once it hits the fridge (or even worse – the freezer).

    • jswilson64 says:

      @mac-phisto: Your friend needs to run his credit report and disupte any charge that appears before he turned 18. He was not legally able to sign a contract, so he should not be responsible for the debts his parents [b]fraudulently[/b] incurred with his SSN.

      • mac-phisto says:

        @jswilson64: well, the problem is that it doesn’t appear on his credit report – the companies just have a red flag on his SSN to deny service until he pays the charges due. despite his attempts to rectify the situation, they’ve largely been dismissive of his attempts to wipe the debt (i think he had success with the electric co., but that’s about it).

        i told him to contact the relevant state authorities (PUC, consumer protection, etc.), but i don’t know if he got anywhere with them (doubt it – navigating the state agencies here in CT is quite the sisyphean task).

  19. micahd says:

    I love when Dave Ramsey talks about trying to get his credit score. He hasn’t borrowed money in like 20 something years so his credit report just doesn’t exist.

    He talks about if he wanted to rent an apartment, “The landlord wouldn’t rent me an apartment, I COULD WRITE A CHECK TO BUY THE BUILDING, but they wouldn’t rent me a unit.”

    Remember, credit scores are an “I love debt score”

    • Anonymous says:

      @micahd: Of course, it must be an “I love debt score.”

      There couldn’t possibly be any legitimate reason to get a student loan, car loan, or house loan because we are all multi-millionaires like Dave Ramsey!

      • micahd says:

        @MurielGebee: while I don’t doubt that he’s rolling in the coin like scrooge mcduck now, his personal story involves a serious bankruptcy and several repossessions. So he has worked hard to get there and hasn’t borrowed money sense. (standard disclaimer that I don’t actually know the guy and am taking his word)

        I will agree with you on home loans they are usually OK and help people.

        Student loans for undergrad are dumb. The only place I disagree with Ramsey is on high earning professional degrees like MD or law. There’s just no way a person can work and study like that and if you live smart after graduation you can pay back the loan quickly.

        Car loans are absolutely stupid. Paying $300 to $1000 a month on something that is losing value is just dumb. Just ask all the people that owe thousands more on their SUVs than they can now be sold for.

    • j-o-h-n says:

      @micahd: I not sure I believe him — my credit report has plenty of non-credit items like utility payments and what not.

    • acwatts says:


      It is funny – but in the real world they have to go by somthing. Otherwise what would they do – only rent to people they know personally? I think his point is well taken, but I doubt that he actually couldn’t get approved for an apt.

    • gauden44 says:

      @micahd: Dave Ramsey is a good motivator, but I think some of his ideas are dumb.

  20. Joe says:

    I have bad credit. We recently moved, and I had to pay $275 to get the electricity turned on, $250 for TV, $100 for water and sewer (I don’t think that one was credit-based). The girl at the gas company waived the deposit, but I suspect it was because we were being flirty. Now, these are deposits that I’ll get back, but they’ll have my money for who-knows-how-long. Actually, I think it’s the power company where the deposit actually accrues interest, but certainly not at a competitive rate.

  21. bmorsh says:

    This is a real problem. Many organizations and individuals tend to paint a picture of how someone will behave based on ‘credit worthiness.’ I have a real dispute with an organization, and they have managed to turn my life upside down. About 2 years ago, I lost an excellent opportunity over this very issue when a potential employer checked my credit rating after they had already drawn the contract. It was very embarrassing and painful for me.

    • Mina_da_mad_child says:

      @bmorsh: I’m so sorry to hear that. My credit is awful, mainly because of my family, and I am so scared of something like that happening to me :-(

  22. Anonymous says:

    I believe California prohibits insurers from using credit scores to grant insurance. I have NEVER had any insurer run a credit report.

    I also think Dave Ramsey is right: let’s stop using the credit card companies (and banks) when they make all of the rules that change at their whim. I’m opting OUT!

  23. Anonymous says:

    While people are harassed by credit scores, corporates go scot-free. If i were a corporate, and have bad credit, plus five convictions for fraud and pollution, i will still be able to get great deals from suppliers and loans from banks.
    Why isn’t there a FICO for corporates?

  24. lowercase says:

    Re: cell phone deposits, if your credit is such that you need one, deal directly with the carrier. I signed up for a phone through a few years ago, and they essentially lost my deposit. In fact, when I called Cingular about getting it back, they said they had no record of ever requiring me to have on. I did get it back eventually, since I had the credit card statements to prove it was paid, but I wouldn’t recommend using a 3rd party reseller if a vendor is involved.

  25. Clifford VanMeter says:

    I’ll give you a fifth as well. Security checks. A friend was working for a company that did disposal of meth waste and had to have a DEA security check. He didn’t pass because his credit score was bad and that flagged him as a security risk. After 3-months of work he was fired with no appeal.

  26. Mary Marsala with Fries says:

    Arbitrary and disgusting stuff. Companies getting to pick and choose what they’ll charge customers based on a secret information-gathering system that the individuals in question barely have the right to SEE, never mind affect? Private information gathered and sold behind our backs, to be used against us whenever possible (and for us when? How does this ever benefit a person)?

    I doubt we’ll ever stop it except by building a large, card-carrying anti-credit movement. Where the hell is Tyler Durden when you need him??

    • acwatts says:

      @Mary Marsala with Fries: Really?!?!? The system is far from perfect, but the only credit that is going to work against a person in a big way is bad credit. That is how companies manage risk. I can’t think of many times when having good credit would hurt you…

  27. jswilson64 says:

    Actually, cell phones are “lending” you their service. “Loan” is a noun.

  28. Anonymous says:

    I always thought you could get denied employment with a bankruptcy record -both private and gov’t jobs.

    As for cellphone contracts, any idea if they’re also applying that logic for contract renewals? (Sprint, I’m looking at you!)

  29. geoffhazel says:

    If there ever was a good time to have bad credit, it’s now. So many people are having problems that it’s practically “OK” or at least becoming less bad.

    • ARP says:

      @geoffhazel: Not really. All that happens is that they charge you more, even though your true risk to them (financial, employment, etc.) is very small compared to the premium they charge. They essentially hit your score for the smallest infraction and then use that as an excuse to charge a huge premium because you’re “risky.” So yes, they might still loan to those with not-so-great credit, but they’re not going to give up that premium anytime soon, even if everyone’s score is going down.

  30. scootinger says:

    I guess it’s somewhat like how auto insurance companies charge higher insurance rates for males than females. Why don’t they charge higher premiums for black people while they’re at it? I’m sure they can dig up some sort of statistical data that would assert that African-Americans are more likely to need to make claims.

  31. oneandone says:

    re: Landlords – I don’t mind a landlord checking my credit (and mine was very straightforward about what they were doing & why) or references check. But I do want the credit reports modified so that my on-time rent payment starts counting towards my history.

    I understand that mortgage payments are very different from rent, but it irks me that meeting one set of financial obligations is ignored while meeting another gives you a big credit boost. If late payment of rent and eviction can go on your report, on-time payments should as well.

    Essentially, it seems like the credit report – which was just a picture of how you handle debt – is now being used to describe the entirety of your personal finances, and it’s unsuited for that. It misses a lot of important personal financial decisions & commitments, and it’s not fair to put it to that use.