One obvious place that bad credit hurts you is the interest rate you must pay when you purchase a house. The average price for a home as of January 2016 is $365,700.
A 30-year, $300,000 loan for someone with a credit score of between 760 and 850 carried a 6.346% APR. Someone with a credit score of between 500 and 579 would have a 10.152% APR. That would mean that a person with a good score would have a monthly payment of $1,866, while the person with the bad credit score would pay $2,666, or $800 a month more for the same house. That adds up to $288,000 over the 30 years of the loan.
Edmunds.com says that the average car loan is $24,864. Just think, an auto loan for a person with good credit (defined as a score of between 720 and 850) would carry a 7.221% APR, while someone with bad credit (a score between 500 and 589) would have to pay a 14.909% APR. That works out to a difference of $88 a month, which comes to $3,168 over the three years of the loan. The average person keeps their car for 4.5 years.
That means if each person financed a new car every five years, it would cost the person with bad credit $19,008 more in car financing over 30 years than someone with good credit.
Let's assume, for example, that both the people with good and bad credit both carry the median credit card debt of $2,200 over 30 years. If the person with good credit had an interest rate of 9 percent and the person with bad credit had an interest rate of 20 percent, the person with bad credit will pay an extra $7,260 over a 30-year period. If the person with good credit took the difference and invested that money in an account that earned 8 percent compounded annually for 30 years, he or she would have well over $1 million saved. In fact, investing the $800 difference in the cost of the mortgage alone would be worth $1.2 million.
All types of insurance (auto, health, homeowners) will likely cost more for a person with bad credit than one with good credit. Insurance companies know that people with bad credit make more claims than those with good credit―and therefore are more of a risk to insure.
If your credit score is taken into account on any of your insurance rates, an individual with bad credit will pay more than a comparable individual with good credit.
You may lose out on a better job due to bad credit. More and more employers pull your credit report when you apply for a job, because many see a risk in employing a person with bad credit. The same can be true with promotions. For example, people in the armed forces may not be able to get clearance for classified documents and areas due to bad credit, therefore blocking potential advancement.
Many apartment managers will run a credit check on prospective tenants. If your credit is poor, you may be denied a unit due to the risk that you may not be able to pay.
If you have bad credit, you may need to leave a deposit (or a larger deposit) with certain companies that you would not need if you had good credit. Utility and cellular phone companies sometimes ask for deposits with people that have less-than-stellar credit.
In addition to all the financial aspects where bad credit will hurt you, it could also adversely affect your health. It's not difficult to imagine that a person who has to pay a couple of hundred thousand dollars more for the same house as a neighbor down the street could have some financial stress in their life. This stress can affect a person both mentally and physically, if the bad credit is constantly a source of fighting in the house.
Bad credit is no longer a situation that can be isolated from other areas of your life. The trend is only growing stronger. Consumers must take the time to make the effort to keep their credit in good standing. It will pay off with more money in your pocket and less stress in your life. A bad credit score is expensive. The public is probably not aware of how much this cost can add up to over time―in many cases, it could be over one million dollars. That’s right, over seven figures. If you have a bad credit, the additional money you pay for things like mortgages, car loans, and insurance, compared with those with good credit scores, can be six figures over a 30-year period. Now if that money is invested wisely, that number could rise to more than one million dollars.
Here is how bad credit costs your client in more ways than you imagined:
The flood of foreclosures in the few past years, and at least a year into the future makes the credit-repair business even timelier. Foreclosure consumers typically have many other bills they fail to pay. The mortgage is the last item that doesn’t get paid. All those negative accounts will affect credit reports for seven years. These people are going to need to improve their credit before trying to finance the purchase of another home or auto in the future.