The Increasing Costs of Bad Credit
Bad credit can affect a lot of areas of your life. We’ve touched on various aspects of this (how it may be harder to get approved for loans, credit, rent properties, etc…) in the blogs below. But how much will it cost you over a lifetime?
According to John Ulzheimer, credit expert at CreditSesame.com, “It is a fact that poor credit will make your life more expensive across a variety of services.” And that only seems to be increasing in today’s day and age. Unfortunately, bad credit consumers end up having to pay a lot more than other consumers. No two people have the same credit histories, so it is hard to pinpoint exactly how much bad credit costs you. Depending on the mistakes you’ve made, where you live, and various other factors, how much you pay for bad credit will change. But it is a fact that bad credit is much more expensive.
Not sure how?
Check out the average mortgage. If you have a bad credit score, you will have to pay higher interest rates. The same mortgage loan can end up costing you a lot more than someone with a FICO score of 760 or above. You’ll end up spending a lot more to get the same. And if you live in an area with a high cost of living, say New York, Chicago, or Los Angeles, the numbers can be exponentially higher.
Still not convinced? What about your credit card? Someone with bad credit has to pay a considerably higher interest rate. This can be up to 30% interest on a subprime credit card. Compared to a lower 15% interest rate for the average consumer, debt can add up to impressive amounts for those with bad credit. At 15%, someone with $5000 in credit card interest making the minimum payment will end up paying back about $12,000. But if your credit causes the interest rate to go up to 30%, you’ll end up having to pay over $132,000.
Apart from mortgages and credit cards, there are many more things that cost more because of your credit. Auto loans, insurance premiums, cable companies, and utility companies may all charge higher rates as a result of your credit. It may seem unreal, but the costs of having bad credit are exponentially higher than those of the average consumer.
So what can you do?
If you have bad credit, the important thing to do is to focus on improving your credit. You don’t have to spend your life with these expensive costs as long as you make steps to change it. With a better credit score, you will be able to get lower interest rates, and you won’t have to worry about the exponentially higher costs of life with bad credit.