RE Credit Fix, LLC | Chandler Credit Consulting

How a Bad Credit Score Can Hurt You

To most consumers, a credit score may seem like an arbitrary number that is mysteriously calculated and then published by credit agencies with no rhyme or reason to it. The fact of the matter, is that a credit score dictates all things financial such as interest rates, financing costs and let's not forget your ability to borrow money in the first place. Your credit score and current credit standing position your ability to not only secure financing in the future - it can affect employment, insurance rates, and other areas of your life that you may not be aware of. Simply stated, bad credit adversely affects your bottom line and costs you money. To get an idea of just how much money bad credit costs consumers, take a look at the following examples.

Credit Cards

If you have a low credit score, you will in most cases not be eligible for "prime" credit card financing. These are the cards that have the best interest rates, payment terms, and limits making it easier for you to maintain good payment history and credit profile. While consumers with less then perfect credit can still obtain credit card financing, it is the type of credit that is far less attractive and sets a consumer up on a difficult and costly repayment program also known as "The Sub-Prime Market". These cards often require exorbitant monthly and/or annual fees, low credit lines, or cash deposits just to get the card activated. In most cases, these cards are difficult to maintain a positive payment history on and in some cases will even fail to report your positive credit activity to the credit bureaus. A sub-prime credit card does not only cost you money, it can also make it very difficult for you to improve - if not cause further damage - to your credit score.

Car Buying

If you have a low credit score and you are trying to purchase a vehicle, here is another category for which you will not qualify for the lowest interest rates and financing programs available. On average, bad credit costs you anywhere from $3000 to $6000 in higher interest and monthly payments. While it may not seem like a lot of money on a month by month basis, when calculated over the life of the loan, it will be a sizable amount.

For example: A vehicle loan amount of $25,000 amortized over 5 years:

Credit Status	Interest Rate	Monthly Payment	Extra Interest Paid
Excellent	8%	$507	$0
Mid	12%	$556	$2,952
Poor	16%	$608	6,062

Home Buying

As you might imagine, the effects of bad credit are most evident the larger the purchase. For most consumers, a home is the largest purchase they will make throughout their lifetime. If you have a bad credit score, your interest rates and loan costs are likely to skyrocket. Given that most mortgages are amortized over 30 years, your bad credit could cost you $100,000 -or more- in interest rates alone over the life of the loan.

For example: A $200,000 mortgage amortized over 30 years: