The Cost of Having Bad Credit

It’s a common question many people have—how much will my bad credit score cost me? Although it can be difficult to give an exact answer, as it is different for everyone, there is no denying that having a bad credit score makes your life more expensive in a variety of areas. This is due to having to deal with higher interest rates, more expensive premiums, larger deposits, and the inability to receive some financial services.


No Two People Are Alike


No two people have the exact same financial situation or credit appetite and so there is no way to determine an exact number that your bad credit score will cost you. For instance, you can’t simply say that you credit score will cost you $400,000 over you credit life cycle.  However, it is worthy to note that the heavier you lean on credit the larger the penalty you will have compared to someone who uses cash for most of their transactions.


Mortgage Loans


If you have a poor VantageScore or FICO credit score then you simply won’t get as low of an interest rate on mortgage loans then if you were someone with a high credit score. In fact, if you have a low enough credit score you could be denied a mortgage loan altogether. The average interest rate for a fixed rate thirty-year mortgage of someone with a credit score higher than 750 is 3.8%. This means that if you took out a $200,000 loan you would be making a $935 payment each month. On the other hand if your credit score is lower than 650 the same loan would cost you around 4.9%. This means that your monthly payments for the exact same $200,000 loan would cost you $1,060 every month. That’s a $125 difference, which means that every year you will be paying $1,500 more just in interest, and if you live in the home for 5 years you will accrue $7,500 more in interest than if you had a better credit score.


Credit Cards


The average interest rate on a credit card is about 15%. This is likely the most expensive debt that you will deal with, and 15% is only the average. The cost of having a bad credit score when it comes to credit cards is one of the most pronounced of all the other financial services. At a 15% interest rate, if you have a mere $5,000 in credit card debt and only making minimum payments will end up costing you over $12,000 and will take you around 27 years to repay all of it. Sadly, someone with a bad credit score is going to deal with a substantially higher interest rate on credit cards. In fact, it is not uncommon for people to pay almost 30% interest on a credit card. If this is the case then if you have $5,000 worth of debt and continue to make minimum payments, you will end up paying more than $132,000.


Job Prospects


Having a bad credit score can negatively impact your job prospects. In fact, a study found that almost half of all U.S. employers look at potential employees’ credit score as a determinant for their worthiness of employment. Sadly, having a poor credit score can be enough to scare away many potential employers.




Your credit scores and reports are utilized by insurance agencies in order to determine whether or not you’re insurable and how much your premiums are going to cost. However, keep in mind that the score used by insurers are different than those that are used by lenders. That doesn’t mean that a bad credit score won’t affect your insurance rate. In fact, you can end up spending hundreds to thousands more on your premiums than if you had a better credit history.


It doesn’t end there. Although mortgages and credit cards are the most noticeably expensive financial services to use with a bad credit score there are a slew of others. This includes auto loans and utility companies as they use credit scores to determine your rates, deposit requirements and your premiums. Unfortunately, there is no getting around the fact that having a bad credit score makes life more expensive.


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