Bad Credit Hurts in Many Ways

"It's profiling," Lynch says. "Think about it: If you have all thesecredit issues, a lot of times your mind is not exactly where it shouldbe, like when you're driving."Homeowners insurance policies also follow this path.Car loansIn 2004, the Consumer Federation of America (CFA) announcedthat its investigation into American Honda Finance Corporation revealeddealers in this car manufacturer's network charged different markups tocustomers from different credit tiers. Those in the least creditworthytier could face prices that were 3.5 percentage points higher thantheir better credit brothers.Although they have capped their markups at 2.5 percent, General MotorsAcceptance Corporation and Ford Motor Credit Corporation take the sameapproach.People with poor credit usually pay an interest rate between 19 percentand 26 percent on a new car purchase, compared with the 6 percent to 7percent average, says Lynch.People don't equate that into dollars and cents," she says. "That canbe a difference of $100 to $200 a month on your car payment. It hitsthe pocketbook kinda heavy."Meanwhile, at Citizens Bank in Green Bay, Wis., client advisor JeanneWolf has seen as much as a 10 point difference in car loans sheapproves, depending on that all-important credit score.

"It's about what the perceived risk is to the companies offering theloan," Wolf says.JobThe second shock that hits Lynch's clients between the eyes:Employers care about those credit ratings.Just ask Sanyika Calloway Boyce, a "financial fitness coach" whograduated from Norfolk State University a semester early with honorsociety membership, several internships and $15,000 in unsecured debt.She says the latter cancelled out all of her positives with potentialemployers. And that was in 1994.Today, 70 percent of companies will check credit before they decide tohire a candidate, says Doug Borkowski, a financial counselor for IowaState University's Financial Counseling Clinic. Larger companies aremore likely than small ones to check. The fear is that credit problems at homecreate tension and distraction at work, Lynch says. "If you are their employee, will you begetting phone calls from collectors at work? Will the employer have togarnish your wages?" she asked. HousingRental property owners may reject tenantapplications with poor credit scores, something only 48 percent ofconsumers know, according to the CFA.UtilitiesOnly 30 percent of the Americans that CFAsurveyed know that utilities, too, care about credit scores. Even slowcredit indications are enough to slap you with a $500 deposit beforethe telephone company connects your line or the electric company turnson the juice, Lynch says.

Cell phonesTheseproviders increasingly rely on credit scores to sort the good risksfrom the bad credit. And bad credit definitely doesn't get the sweetestdeals at Verizon. Instead of contract plans that offer more minutes foryour dollar and come with a wider selection of phones, those who do notmake the cut must consider pay-as-you-go phones. Elective medical procedures When Lynch looked into laser eye surgery,the doctor immediately pulled her credit score to see if she qualifiedfor his monthly payment plan. Otherwise, the bill is due in full at thecounter. "They're not denying you service, and ifit were a mandatory treatment, this would never come up," she says.Wolf has seen the same situation at orthodontist offices. School loansWhen Judge John C. Ninfo II,chief judge of the U.S. Bankruptcy Court for the Western District ofNew York, made a documentary as part of his "get out of debt now"program for high school students, he included the sad story of aNazareth College of Rochester student who was turned down for a lawschool student loan because of his FICO score. He isn't alone. Lynch, too, has watchedfamilies' dreams burst when their scores disqualified them fromuniversity and federally funded loans. And in this case, it isn't amatter of sucking it up and paying a higher interest rate.

"It's black and white. You get financingor you don't," she says. "Not furthering your education is afar-reaching consequence."MarriageMorethan half (52 percent) of CFA survey respondents think a married couplehas a combined credit score. Nope. You can't marry your way out of abad FICO rating, and many times a disparity between partners causes toomuch tension for the marriage to survive, says Brette McWhorter Sember,author of "The Complete Credit Repair Kit." She personally knowsseveral couples who skipped the church aisle over it. "If the owner spouse dies, the home andmortgage become part of the estate. If the surviving spouse wants totake over the mortgage, he or she needs to qualify for credit," saysSember. "Most people bank on the fact that they'll live to pay off themortgage, so this isn't a concern."Unfortunately, Wolf adds, more Americans are becomingacquainted with these uses of credit scores the hard way. "People who need the loans typically are paying the higherpayments," she says. "It's a Catch-22. Once they get bad credit, it isdifficult to overcome with these bills."Bankrate.comis the Web's leading aggregator of information on financial productsincluding mortgages, credit cards, new and used automobile loans, moneymarket accounts, certificates of deposit, checking and ATM fees, homeequity loans and online banking fees. Visit Bankrate.comto get the tools and information that can help you make the bestfinancial decisions.