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Credit Repair Drill

Credit Repair Drill

Putting your credit pieces back together

Cost of Bad Credit

How much does a low score cost you?

So what's really the cost of bad credit and why should you even bother with credit repair. Simply put, when it comes to mortgages, auto lending and credit cards, the lower your score, the higher the interest rate you're going to pay.

Over the course of a vehicle or mortgage loan, the cost of bad credit can reach thousands or even hundreds of thousands of dollars in interest payments. A report by the Consumer Federation of America estimates that consumers could save about $16 billion a year in lower finance charges by improving their credit scores by an average of 30 points!. As you can see, there are a lot of people who profit from your bad credit.

These days the information on your credit report affects practically everything you do. For example your credit dictates:
Where you work (with over 70 percent of employers now running credit checks on new applicants).
Where you live (as far as renting is concered, most landlords make decisions based on credit reports).
What you pay for basic utilities (water, gas, electric and trash, they all want deposits if you have bad credit).
What you pay for auto Insurance (people with bad credit tend to have more claims so they end up paying more).
Your ability to get unsecured loans and credit (with bad credit, borrowing money for anything is almost impossible).
Your ability to live the American dream and invest in Real Estate.

Having a good credit score simply means it will be easier for you to get loans and lower interest rates. Lower interest rates on the other hand means smaller monthly payments.

We are going to make some general assumption to give an idea of how much more it costs a person with poor credit compared to one who has good credit. The amount a person with poor credit must pay, which are the figure in the "Cost of Bad Credit" column in the tables below, may surprise you.

Credit Cards - Most, if not all, prime credit cards are entirely out of reach to consumers with bad credit. And the few credit cards that are available to them (known as "sub-prime" cards) typically require exorbitant setup fees or recurring monthly fees. They offer very low credit lines, require cash deposits, and in most cases do not even report your positive credit activity to the Credit Bureau.

Automobile Financing - If you are making payments on a car, you are probably paying between $5,000 and $9,000 more just for having bad credit. This added interest shows up every month in a higher payment. Take a look.

$20,000 car paid over 5 years:

Perfect 10% $424.94 $0.00
Mildly Damaged 14% $465.37 $4,722.54
Damaged 20% $529.88 $8,593.30

Home Mortgage - Bad credit in auto financing can really hurt, but it is nothing compared to the cost of bad credit when a home is involved. A typical home can cost between $50,000 and $130,000 more in interest if you are buying the home with bad credit. Also, people with lower credit scores have to pay higher up front costs in the form of mortgage loan origination fees.

$100,000 home paid over 30 years:

Perfect 7% $655.30 $0.00
Mildly Damaged 9% $804.62 $50,155.24
Damaged 12% $1,028.61 $130,791.63

As you can see, a low credit score can cost you hundreds of dollars per month. This is why it is so important to obtain and maintain a high of a score.

Understanding Credit
DIY Credit Repair
Negative Items

Related Content

How to order a free credit report Dealing with Credit Bureaus
How to repair bad credit yourself Profile of a Perfect Credit
How to Improve your credit score Credit & Marriage
How to dispute negative credit Know your legal rights

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