How bad credit affects mental health

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The COVID-19 pandemic has put the physical health of millions of people in the US and around the world. And for many there were also mental health implications.

“COVID has made many aware of their financial situation and demonstrated the importance of strong financial health,” says Rebecca Brooks, owner of R&D Financial Coaching. “However, the stress and uncertainty have also resulted in many having a strong feeling of scarcity and fear – avoiding debts, wanting to repay as much as possible and increasing the balance in their emergency fund.”

When financial stress arises, be it from a global pandemic or something else, your creditworthiness can suffer. For example, if you pay bills late, have large balances, or open multiple credit cards in a short period of time because you are short of cash, you can cost you credit points.

Almost a third of Americans have subprime credit, which means less than 670 according to an FICO score experience. For some of them, 2020 proved challenging as lenders tightened standards for credit cards and loans.

Not being able to borrow money when needed can lead to financial stress or money decisions that make bad credit worse. Understand the relationship between financial health and mental health when trying to improve both.

What Causes Bad Credit Score and How Does It Affect Mental Health?

There are a number of reasons someone might have bad credit, starting with low wages, says Kristin Lobenstein, financial coach at the Jewish Family Service in the greater Dallas area.

“When someone can’t pay their bills, they look for credit cards and payday loans to even cover their basic living expenses,” says Lobenstein. “And if something breaks, like the transport to work or a cell phone, credit cards are the only way to survive and keep your job.”

Low income can lead to high debt or late payments, both of which can affect creditworthiness. Bad habits of handling money that are not related to income can also be a culprit.

Thirty-five percent of your FICO credit score is based on payment history. If you are habitually late (or not at all) paying credit cards, loans, or other bills, it can hurt your score. Likewise, carrying high balances or exhausting your cards can also hurt your score, as 30 percent of your FICO calculations are based on your credit load.

Lobenstein says having no budget is a problem when it leads to overspending. Likewise, failure to track expenses can lead to bad credit if it puts you into overwhelming debt. However, it’s important to remember that poor creditworthiness can also be the result of things that are beyond your control.

For example, say you get sick, injured and unable to work, or you will be fired from your job. If you don’t have a large emergency fund to fall back on, you run the risk of falling behind on credit card payments and other bills. In this case, late or missed payments will still result in bad credit.

Regardless of the cause, bad credit can affect you financially in several ways. For example, poor credit can make it difficult to:

  • Get approved for new credit cards or loans
  • Rent an apartment or get utilities on your behalf
  • Buy a house
  • Qualify for low interest rates
  • Get hired for specific jobs

When trying to advance financially, poor creditworthiness can be an obstacle to achieving your goals. This can be damaging to your mental health if you feel hopeless about your financial situation.

There is also a link between debt and mental health. According to Monetary Policy and Mental Health Institute, 46 percent of people with debt problems also have mental health problems. And 86 percent of people who suffered from mental health problems said that their financial situation made them worse.

For example, if spending money is a coping skill, it can be psychologically and financially problematic.

“If you think you will feel better about what you buy, the more likely you will prioritize the expense or debt incurred,” says Aja Evans, a New York City-based licensed mental health consultant. Learning to develop healthy coping strategies that are not dependent on spending could help reduce your risk of getting into debt.

How do finances affect your mental health and vice versa?

According to Kaiser Family Foundation, 4 out of 10 American adults experienced anxiety or depression during the pandemic. That’s more than 1 in 10 Americans who reported anxiety or depression in 2019.

So what’s behind the climb?

Part of the problem is anxiety and stress about the virus itself and what it could mean to get sick. But isolation, job losses, and the financial consequences of unemployment also affect American mental health.

Aside from the pandemic, poor mental health can be triggered by stress in the workplace. A study from the World Health Organization (WHO) found that 264 million people worldwide have depression and anxiety, which costs $ 1 trillion in lost productivity. The study identified stressors in the workplace as a cause, including:

  • Inflexible working hours
  • Inadequate health and safety guidelines
  • Bad communication and management practices
  • Limited control or participation in decision-making
  • Unclear tasks
  • Little support for employees

An overwhelming workload and bullying or harassment in the workplace also contribute to a work environment that is ripe for mental health problems. You may feel pressured to go to work to bring in a paycheck, but it comes at the cost of your wellbeing.

Then there is relationship stress. In one (n Studied at Indiana UniversityFor example, 50 percent of participants said they had experienced depression in connection with the pandemic. And 50 percent also stated that they had experienced psychological aggression (such as yelling and threats) from their partner. Since money is often cited as a source of argument for couples, the pandemic can lead to more frequent arguments – and thus more financial stress for couples.

It is important to address these issues in order to improve financial health.

“People who feel financially stable work better and feel more confident in interviews and interactions with others,” says Lobenstein. “People with partners who have open conversations about money are happier in their relationships.”

A history of mental illness in your family can also affect your mental and financial health. Scientific evidence suggests that having someone in your family with mental health problems could increase their risk of developing a mental health problem themselves. This, in turn, could put you at greater risk of getting into financial trouble, which can lead to poor creditworthiness.

If you are struggling with mental health problems or know someone who is mentally ill, there are resources out there that can help you.

This will improve your credit score and reduce financial stress

Put simply, poor creditworthiness can prevent you from getting ahead or meeting your financial goals. Bad creditworthiness can make life difficult financially and psychologically, but it doesn’t have to be a permanent situation.

Sitting down and adding up your debts can be a step in the right direction. Once you know what you owe, who you owe it, and what interest you are paying, you can formulate a realistic plan for paying off your debt.

This step can feel overwhelming and it’s okay to seek help. For example, a nonprofit credit counselor can review your expenses and debts and then offer solutions to manage them. It can be as simple as creating a monthly budget or signing up for a debt management plan (DMP). Here are a couple of options:

Evans says talking to someone can help alleviate some of the psychological stress you may be feeling about your financial situation. “Shame is a major cause of negative feelings about finance. Telling a trusted person out loud how you are feeling relieves some of the pressure on yourself. “

You can also explore options for rebuilding bad credit over time. For example, if you open a credit card because of bad credit, you can build a positive payment history. That can affect your credit score if you pay responsibly every month and keep your balance low.

The most important thing is to do something, not nothing.

“There are many ways you can improve your credit score, and by learning what to do and simply taking action, your stress will decrease,” says Brooks.

The bottom line

Financial stress and poor mental health often go hand in hand. The COVID-19 pandemic may have increased your anxiety levels as you struggle with debt or lost income. Realizing how financial worries can affect your mental health, or vice versa, can make it easier to come up with a solution to address both of these positively.



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