What can a bad credit cost you?
Your credit score is not merely a three digit number; it is a snapshot of your creditworthiness. It can affect everything from whether you qualify for a loan, an apartment lease to whether an employer hires you or not.
If you are marked as having bad credit, you will be having a real tough time in obtaining loans and even if you do, pay a higher interest rate than someone with good credit. So, settle in and check out the consequences of having a bad credit.
Buying a home with bad credit
In case of a mortgage loan, the cost of bad credit is the most evident one. A poor credit can really hurt your dream of purchasing that dream house. A bad credit doesn’t mean that you would be turned down for a loan but you will have to certainly pay a higher price for the dream house. For instance, if you have a credit score of 710 and above then you will have lenders running after you to offer you loan at favorable interest. A score in the range of 620-700 can also fetch you some good deals on mortgages. But if your score is in the range of 560 to 619 then it would cost you some hundred or thousands of extra dollars to get approved for the loan. Given below is a table that will illustrate how your score can influence the interest rate on a $200,000 mortgage paid over 30 years.
|
FICO Score |
Interest rate |
Payment per month |
|
|
720 - 850 |
5.922% |
$ 1,189 |
|
|
675 - 699 |
6.584% |
$ 1,275 |
|
|
620 - 674 |
7.734% |
$ 1,431 |
|
|
560 - 619 |
8.531% |
$ 1,542 |
|
Cash Out Refinancing with bad credit
Your credit score can also decide the amount of home equity you can cash out to finish your home improvements, or pay off your college tuitions or anything else you wish to spend the money on. For instance, if you have a score of 580 then you might be able to receive only 70% of the equity while someone with a score of 650 might be able to take out more.
Auto loan with bad credit
Better your score, better the car loan rates you will be entitled to. According to MyFico, if your score is between 720 and 850 then you have to pay a 7.221% APR for an auto loan whereas if the score is between 500 and 589 then it becomes 14.909% APR. Given below is a table that will illustrate how your score can influence the interest rate on a $20,000 car loan paid over 60 months.
|
FICO Score |
Interest rate |
Payment per month |
Cumulative payments: |
|
700 |
7% (6-8%) |
$396.02 |
$23,761.49 |
|
670 |
9% (8-10%) |
$415.17 |
$24,909.98 |
|
640 |
12% (10-13%) |
$444.89 |
$26,693.31 |
|
< 600 |
17% (13- 21%) |
$497.05 |
$29,823.14 |
Auto and Home insurance with bad credit
For insurers credit score is one of the important factors used in determining the insurance score. It has been seen that people with lower credit score file more claims. The theory that is popular in the insurance business is people who have a bad credit score (500 to 589) are more likely to defer on their important maintenance on their cars and homes than the people who are having their scores in the range of 720 to 850.
A poor credit score costs you extra money. Thus, take proper steps to boost up your credit score; it would save you hundreds and thousands of dollars a year.
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