Financial Cost of Bad Credit: How Much More Are You Spending?

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Financial Cost of Bad Credit: How Much More Are You Spending?

The costs of bad credit are real. More than 50% of Americans have subprime credit which means that they routinely do not have access to the best interest rates or loan terms when they go to borrow money.

But have you wondered exactly how much having bad credit hurts you financially? Here is an estimate of how much more you are spending if you have bad credit.

Mortgages

Buying a home is one of the biggest purchases you’ll ever make in your life since it is probably one of the only things you’ll ever spend six figures on. Since the cost of a home is so large, an interest rate difference of even a fraction of a point can mean that you spend thousands of dollars or more throughout the duration of your mortgage.

In addition, your credit score will also impact how much of a down payment you need to make in order to buy the home.

Renting an Apartment

Bad credit not only affects your chances of being approved for a mortgage, it can also determine whether or not you are allowed to rent property.

Many landlords these days require a credit check as a part of the screening process for potential tenants. If you live in an area with a competitive rental market, having bad credit can mean that it’s more difficult to find a home or apartment to rent.

While renting may not be completely impossible, a potential landlord may even require you to pay several months of rent in advance to be approved which is something that they would not require of a potential tenant with good credit.

Loans and Credit Cards

Bad credit can also cost you money if you apply for a personal loan, car loan, or credit card. The different in your interest rate of just a few points could mean that you pay significantly more in your monthly payments.

If your credit score is too low, you may not qualify for a loan or credit at all. This means that if you have to borrow money for an emergency, your options may become severely limited. You may also be pushed into having to borrow money at super high interest rates such as with a cash advance or payday loan.

Student Loans

Failing to make payments on time and going into default on your student loans can lead to a low credit score. If you already have student loans that are not current, a bad credit score will mean that you won’t give approved for debt consolidation or refinance that could lower your monthly payments.

Insurance

At some point, you’re going to need to apply for insurance. Whether it is car insurance, life insurance or homeowner’s insurance, to avoid paying the highest premiums, you’ll need to have a good credit score. In fact, nearly all insurance companies use your credit score to determine premiums.

Other Bad Credit Roadblocks

Finally, bad credit can also affect you in other ways. Some employers, especially those in the financial industry, check your credit before deciding whether to hire you for a job. If you have bad credit, you may not get the job.

You could also be blocked from opening a bank account if you have a long history of bounced checks or overdrafts and overall bad credit.