The Risks of Living On Credit

May 12, 2013 by  
Filed under Debt & Credit Free

If there’s one thing the movie “Confessions of a Shopaholic” taught us, other than compulsive buying disorder, haute couture brands and the latest fashion trends are the consequences of poor credit management. A girl’s addiction to shopping causes her to max out on her ‘oh-so-many’ credit cards and manages to drown herself in an enormous debt.

What does “Living on Credit” mean?

“Living on credit” is just almost as common as common cold. If you have at least one credit card on you and are relishing the convenience it offers in terms of frequent payments, you have this cold too! The easiest definition of the term living on debt would be being under debt obligations. For example, when you borrow money from the banks or any other such source, you are living on credit. Credit cards explain this phenomenon the best.

As helpful as this service may sound, with the frills of not having to carry cash all the time and the thrills of that swipe, this best friend is capable of becoming your worst enemy under different circumstances. One may or may not understand the repercussions of living on credit in the very short run, however this is one shadow that will eventually come back to haunt you.

What are the Risks of Living on Credit?

“Excess of everything is bad.” Since childhood, we come across this phrase a lot – whether it’s about the eating too much candy or talking to much or having huge debts, the rule applies to all of them. Living credit-free may be an overstatement but living debt-free is definitely an achievable as well as a desirable goal.

Some of the risks involved with excessive credit may be enlisted as below:

 Buying or renting a house

As debt troubles are becoming more popular, most landlords ask for credit details before renting out their house. If your credit history has been shady, you might be denied renting the place. Also, while applying for a loan to buy a new house, it is only obvious that the financial lender will do their background check and scrutinize your credit reports. In case they feel that there is high risk involved, getting the loan may be problematic. Even if you get the loan, it will be at a very high interest rate. Higher is the risk that the institution senses, more is the interest rate you’ll have to pay.

 Credit Cards

Bad credit scores give the lenders an impression of “risky business”. Worse are the credit scores, more are the chances of you having to pay a higher rate of interest over time. Upon observing, you will not that the amount of interest you end up paying due to bad credibility is much more than you would have under normal circumstances. Also, in worst case scenario, you may be completely denied to get a credit card.


Whether you are looking to purchase a car or a house or trying to finance your kids’ education, you are more likely to apply for a loan. The banks keep your credit scores under great scrutiny before they sanction your loan. If they feel that there is a lot of risk involved when it comes to you repaying your loan, they may deny you the loan or allow the loan at extremely high interest rates. Eventually it becomes very difficult for you to pay back the loans at such exorbitant rate of interest.


Insurance companies tend to charge higher insurance premium from people who they deem as being risky prospective. They relate bad credit worthiness to more claims and thus may even deny insurance to you in case they find a lot of negative elements in your credit reports

Security deposits

All utility companies, as a part of their application process, check back your credit background. There is a very high possibility that they may deny your application or charge you higher rates for their services due to a bad credit score.

Phone services

Nowadays even phone companies check back on your credit reports. If the credit report in not clean, they feel that you might not be able to pay back your bills and as such they might not allow you their services.

Getting a job

As unfair as it may sound but many employers now check on the credit worthiness of prospective candidates for a job and it has a tendency to affect the probability of someone getting the job, directly or indirectly


All of the above mentioned and other factors added, a bad case of living on credit affects you financially and also has a prominent effect on your health. A cause of stress, anxiety and depression, having a huge debt may cause problems to your life at large.

As such there are a lot of grave risks involved with living on credit and it requires keen management on our part to ensure that we build a good credit.