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Credit Card Applications » Questions » User Questions » Limited/Bad/Fair Credit » What are the problems that could arise due to bad credit?

What are the problems that could arise due to bad credit?

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Bad credit is often seen to be a measure of the lack of creditworthiness. Customers with bad credit are seen as a risky proposition, whether it is for loans, insurance or credit cards. In fact, these days, even house owners and prospective employers are looking at credit history of an individual. Therefore it is quite plain that credit history of an individual decides a lot of things.

When a customer with bad credit applies for credit cards, it is not likely to be approved very easily. In fact, the credit cards which are approved for customers with bad credit usually have an abnormally high annual percentage rate. These could be potentially dangerous because if the customer has an outstanding balance, he or she might end up with an enormous interest rate which could lead to severe debt.

Another disadvantage of bad credit as far as credit cards are concerned is that reward credit cards are hardly ever approved for such customers. More often than not, we find that credit cards in demand, such as those with cash back offers, bonus points at the time of applying, frequent flyer miles and frequent shopper rewards are not available to those customers who have a bad credit. These cards are mainly aimed to attract the customers with good credit or excellent credit rating. In short, customers with bad credit are losing out on a lot of reward programs because of their rating. They might also incur high interests which causes their credit rating to slip further, if they are not able to pay back the outstanding balances. Adding to that, the menace of higher late fees and other penalties like the overdraft fees, and bad credit customers are indeed staring down the barrel most of the times.

Bad credit customers also have problem getting loans from banks and good insurance rates. Whether it is a housing loan or a personal loan, the interest on those loans is higher, making it all the more difficult to pay back. Higher interest on loans extends their longevity and also the level of difficulty in making the minimum payments month after month. The premiums on insurance too are very high, making it difficult for the bad credit customers to make the monthly payments on time and in full. If they miss these payments, their credit history would suffer further.

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