The penalties you pay for bad credit, debt, credit
As of July 2011, for example, a person with a FICO credit score of 760 or higher who qualifies for a mortgage loan of $ 300,000 can expect to get that loan at a rate of 4.3%. This borrower’s monthly payment will be $ 1,485, according to data from Bankrate.com.
Now compare that with someone who has poor credit and a FICO score of 620. That person will only qualify for a mortgage of $ 300,000 at an interest rate of 5.9%. This translates into a monthly payment of $ 1,779. Each year, the second borrower will pay an additional $ 3,528 to the bank. And over the life of a 30-year loan, the person with bad credit will pay $ 106,126 more in interest alone.
Do the same math for any other credit obligations you might have, and it’s easy to see that bad credit can cost you dearly when you need to get a loan or credit.
Great credit helps you save or earn money
In other areas as well, having bad credit can cost you a fortune, especially because it can impact your ability to save and earn money.
Did you know that your life and auto insurance rates are tied to your credit rating? It’s true. People with excellent credit are offered lower insurance rates than those with poor credit. It may sound unfair, but that is how the system works.
On the job side, too, having a bad credit profile leads to financial problems.
For starters, employers are increasingly pulling people’s credit reports before determining who to hire and who to promote. According to the Society for Human Resources Management, 60 percent of all American employers now perform credit checks as part of the job selection process.
In the worst case scenario, bad credit can prevent you from landing a lucrative job or getting the promotion you deserve.