Bad Credit Can Cost You 7 Figures...
Billy Alt - Monday, February 04, 2019
Bad Credit Can Cost You 7 Figures...
A bad credit score costs money – in many cases it could be over $1 million.
That’s right over seven figures.
If you have bad credit, the additional money you pay for things like mortgages, car loans and insurance, compared with what others with good credit pay, can be hundreds of thousands of dollars over a 30-year period.
When that same money is spent or invested wisely, that number could easily rise to more than $1 million.
Here is how much money bad credit costs you:
Mortgage: One obvious place that bad credit hurts you is the interest rate you pay when you purchase a house.
The average price for a home in 2018 was around $250,000.
A 30-year, $250,000 loan for someone with a credit score of between 760 and 850 is around 4% APR.
Someone with a credit score of between 500 and 579 would have around 8% APR.
That would mean that a person with a good score would have a monthly p&I payment of around $1,200,
while the person with the bad credit score would pay more like $1,800 --
or $600 a month more for the same house.
That adds up to $216,000 over the 30 years of the loan.
Auto loan: A few years back, Edmunds.com said 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 7.2% APR,
while someone with bad credit
(a score between 500 and 589)
would have to pay a 14.9% APR.
That works out to a difference of $88 a month, which comes to $4,752 over a 4.5 year loan.
The average person keeps their car for 4.5 years.
That means if each person financed a new car every 4.5 years,
it would cost the person with bad credit $31,680.
more in car financing over 30 years than someone with good credit.
Credit cards: Let's assume, for our 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% and the person with bad credit had an interest rate of 20%, the person with bad credit will pay an extra $7,260 over a 30-year period.
Lost interest: If the person with good credit took the difference and invested that money in an account that earned 8% compounded annually for 30 years, he or she would have well over $1 million saved.
In fact, correctly investing the $600 difference in the cost of the mortgage alone could be worth over $1 million.
Insurance: 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.
Job: 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.
Housing: 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.
Deposits: If you have bad credit, you may need to leave a deposit -- or a
larger deposit -- with certain companies than you would if you had good credit. Utility and cellular phone companies sometimes ask for deposits with people that have less-than-stellar credit.
Health: 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.
I hope this helps you understand the importance of having great credit…if we can be of assistance, please reach out!!
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