A recent study from Credit Sesame, which surveyed 5,000 adults in the United States, reveals that the cost of a low credit score is more than financial. The findings show that poor credit impacts nearly every aspect of consumers’ lives—from mental health and personal relationships to their employment and living situation.
This article highlights the comprehensive impact of poor credit and explores the different financial and lifestyle experiences between those with poor credit and Americans overall.
Americans with poor credit are being hit hard by the system, and they know it.
According to the research, those with poor credit scores (300-549) are overwhelmingly young, female, and have a high school education or less. Half (50 percent) said their first experience with credit was negative, and even more—61 percent—said their overall experience with credit was negative, compared to 18 percent of Americans overall.
Those with poor credit believe the system is unfair.
Whereas 66 percent of respondents overall said they believed their credit score was an accurate reflection of whether they could be trusted to pay back a loan, just 38 percent of those with poor credit agreed. Furthermore, about a third (34 percent) of those with poor credit believe the financial services sector exists to hurt them.
Many also attributed their low score to several barriers, from making on-time payments to unemployment and unexpected medical expenses.
This contrasts starkly with the experience of those who have good (640-719) or excellent (720+) credit, who cited positives (87 percent) rather than barriers:
- 56 percent said they had many years of good credit history – just four percent of those with poor credit said this
- 50 percent said they had always kept up on expenses – just three percent of those with poor credit said this
- 49 percent said they had never or rarely made a late payment – less than five percent of those with poor credit said this
- 45 percent said they had worked really hard to build good credit – less than five percent of those with poor credit said this
They’ve been hit harder by the pandemic than most.
According to the survey, 61 percent of those with poor credit said it would take them between one and five years or more to recover financially, compared to 34 percent of overall. And, they report a completely different experience with credit than the norm. Half (50 percent) said their first experience with credit was negative, and even more—61 percent—said their overall experience with credit was negative, compared to 18 percent of Americans overall.
Credit worthiness is also impacting their mental health.
Of those with poor credit, 79 percent say their credit score induces negative feelings: 49 percent are “worried”, 46 percent are “ashamed”, and 30 percent are “angry”. This presents a striking difference with Americans with good or excellent credit who cite the positive feelings their credit score induces: 40 percent are “proud”, 40 percent are “happy”, and 34 percent feel “fine”. Almost half of those with poor credit (49 percent) try to hide their credit score from others—nearly twice as many as the broader population (26 percent).
This dichotomy is especially evident in how a credit score has hurt or helped them.
Almost all Americans with poor credit (94 percent) can identify how their credit score has negatively affected them in life. Over half (57 percent) have to operate on cash or debit because they don’t have a credit card, and half can’t buy a home or qualify for a car loan. Others have missed out on job opportunities or experienced problems in relationships because of their poor credit.
Many with poor credit say they are working hard to improve their credit score.
Many with poor credit say they are working hard to improve their credit score and financial situation by reducing debt (29 percent), signing up for a credit monitoring service (15 percent), working side jobs (14 percent), and using credit cards carefully (14 percent). Just 19 percent have given it up as a lost cause.
Free services like Credit Sesame arm consumers with the information and personalized recommendations to work towards improving their credit score. Credit Sesame has a proven track record when it comes to helping consumers improve their financial standing: 61 percent of Credit Sesame members have seen their credit score improve within the first six months of using the platform — 50 percent have seen their credit score improve by more than ten points in their first six months, and 20 percent have seen their credit score improve more than 50 points in their first six months.
Methodology
Credit Sesame conducted this research using an online survey prepared by Method Research and distributed by Dynata among n=5,000 adults in the United States. The sample was balanced by census targets for age, gender and ethnicity to be nationally representative of the US population. Data was collected from October 16 to October 30, 2020.
