Most people don’t realize that having a poor credit score will cost them hundreds or even thousands of dollars per month. The reason they aren’t aware is because most people don’t run the numbers. If they did, they’d be surprised!
Many people with bad credit when purchasing a car or home don’t realize that if they had better credit their interest rate would be lower, thus their monthly payments would be lower. Many people purchase cars and homes and just look at the monthly cost and not the interest rate.
Most prime credit cards are out of reach from consumers with bad credit. The few credit cards that are available (known as “sub-prime” credit cards) typically require expensive setup fees or recurring monthly fees, often require cash deposits, offer very low credit lines and most of the time don’t report as positive credit activity to the credit bureaus.
Let’s take a look at automobile financing and determine the cost of poor credit. If you plan on financing a car, you will end up paying $5,000 to $9,000 more because of your bad credit. The higher the interest rate, the higher your monthly payment which adds up to significant money over the years. See sample calculation below.
Another area where having bad credit can really hurt is your home mortgage. A typical house will cost you $50,000 to $130,000 more in interest if you are buying the home with poor credit. See sample calculation below.
Improving your credit score is vital before making major purchases.