Fact: If you’re not protecting your credit, you’re setting yourself up for trouble. Trouble in the form of paying too much for everything. Cars, houses, even on your credit card purchases, all these areas of pleasure will end up costing you more than you could imagine if you have bad credit.
The truth is, anything other than good credit will follow you around, and end up in essence, decreasing the amount of money you have to spend every month.
What’s the cost of bad credit initially? Well, if you plan to use credit cards and you have bad credit, think again. Credit cards for people with bad credit start, on average, at 20%. This means that for every dollar you purchase with that card, you’ll be paying back an additional 20 cents.
All of the prime types of credit cards with the bonuses and reward points are completely unattainable for the average person with bad credit. Lenders know this. They know that the few sub-prime type of credit cards available to people with bad credit suck. Those cards require extremely high setup fees, have lower credit lines, and sometimes even require you to make an initial cash deposit of up to half the credit value. And that’s before you can even use the card.
So the cost of bad credit can be expensive for credit cards, but how about if you want to buy a car? The answer is exactly the same. Assuming that you can find a dealership that will lend you the money to purchase a car without a cosigner, you’ll often end up paying up to $5000 more for a vehicle just because you have bad credit. This added interest translates into higher monthly payments for you. So, if you’re in the business of saving money, and you have bad credit, then fixing your credit should be your number 1 priority.
In the future, when you finally decide to settle down and purchase a home, ideally you would want to be able to find the best home for the best price. This is almost unimaginable when you have bad credit. The real cost of bad credit when buying a car is nothing compared to how much extra you’ll have to pay on a mortgage for a home. Typical prices of homes range from $50,000 to $140,000. When you have bad credit, those prices can almost double. For example, a home that cost $100,000 that’s paid over a typical 30 year time period will cost someone with good credit approximately 6.4% extra. So that’s a total of $106,400. Now, if you have bad credit, you will really pay up to 12.5% more just because of your credit rating. This can make the difference between a $600 mortgage payment and a $1000 mortgage payment.
Why would you want to pay more than you need to? This is the question you should ask yourself when you think about the real cost of bad credit.