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How much will bad credit cost me?
Bad credit is expensive. From credit cards to mortgage loans and everything in-between, people with poor credit pay much more for goods and services purchased over time than those with excellent credit. On the bright side, even a modest increase to your credit score can save you thousands of dollars of interest on your home mortgage, car loan, or credit card debt.
The following are just a few illustrations of how much bad credit may be costing you!
Mortgage Loans
Because mortgage loans involve large sums of money, even small variations in interest rates can make a big difference. The chart below shows the difference in costs of a $200,000 mortgage for borrowers of Excellent (A-range), Average (B-range) and Poor (C-range) credit. As you can see, in this case the total cost of poor credit is greater than the original mortgage.
| Credit | Rate | Monthly | Monthly Cost | Total cost |
|---|---|---|---|---|
| Excellent | 5.75 | $1,168.00 | $0.00 | $0.00 |
| Average | 7.75 | $1,433.00 | $265.00 | $95,400.00 |
| Poor | 10.75 | $1,867.00 | $699.00 | $251,640.00 |
Auto Loans and Vehicle Financing
Even in smaller loans, such as a car loan, the costs can be dramatic. The following table shows the difference good or bad credit can make even in a loan for $15,000 over five years.
| Credit | Rate | Monthly | Monthly Cost | Total cost |
|---|---|---|---|---|
| Excellent | 7.00 | $298.00 | $0.00 | $0.00 |
| Average | 9.00 | $312.00 | $14.00 | $840.00 |
| Poor | 12.00 | $332.00 | $34.00 | $2,040.00 |
Credit Cards
Right off the bat, with excellent credit you can get a credit card approved almost instantaneously with any major credit card company with no annual fee and an attractive interest rate, often under 10%. Someone with poor credit will struggle for credit card approval, and if he or she gets approval at all, it is likely to be for a card with an interest rate of at least 19% and a hefty annual fee.
What this translates to in dollars and cents will differ from person to person, depending on the balance that they carry on their card. However, at a glance, it is easy to see that if you carry any balance at all on your card, the cost of carrying a balance will be nearly twice as much with poor credit as excellent credit.
Employment and Housing
Poor credit can even affect your employment and housing situations. Although federal and state laws prohibit employers and landlords from discriminating based on previous bankruptcy, employers and landlords often turn away applicants with poor credit ratings. Landlords have typically rejected any applicants who they feel are likely to be delinquent on their rent, but sometimes even employers will screen out prospective employees based on poor credit history, particularly if they are applying for jobs dealing with cash, valuables, or finances.