You might not believe it, but the difference between a good and bad credit score can cost you a lot. In fact, according to a recent study from the financial tech company “Self.”, bad credit will cost the average American an estimated $130,461 in interest fees alone over their lifetime.
While a bad credit score range is anything under 600, you should aim for at least a fair score of 620 if you are looking to mortgage a loan or to qualify for better interest rates. However, if you already have bad credit, it is possible to achieve a good or excellent credit score of 750 or higher.
Let’s explore the potential costs associated with a bad credit score.
$400,000?!
When aggregating their data, Self Financial Inc. discovered a bad credit score cost is nearly $400,000 per person. But where does that money come from?
To begin with, a low FICO credit score can lead to higher interest rates on loans. Lenders consider individuals with bad credit to be riskier borrowers, so they compensate for that risk by charging higher interest rates. This means you will end up paying more in interest over the life of a loan, whether it’s for a car, mortgage, or any other form of borrowing.
In addition to higher interest rates, you may have trouble getting credit altogether. Many lenders have strict credit score requirements, and a bad credit score could result in loan denials or limited access to credit. This can impact your ability to make large purchases or invest in opportunities that may require financing.
A bad credit score can also affect your insurance premiums. When purchasing insurance, you have an insurance score that takes into account how likely you are to file a claim. Although credit scores and insurance scores are slightly different, insurance companies often consider credit history when determining insurance rates. The worse your credit is, the higher your insurance premium.
Beyond loans and insurance, a bad credit score can affect your housing options. Landlords frequently review credit scores as part of the rental application process. If your credit score is low, you may struggle to get a desirable rental property or be required to pay a higher security deposit.
Reasons for a bad credit score
If you have bad credit, don’t worry; there are many ways to improve your credit score. You can start by making on-time payments on your credit cards, pay down debt, and take out a personal loan to build a positive credit history. By practicing good credit habits and going slowly, even borrowers with the worst credit can improve their credit score within a few years.
If you are having trouble with a credit bureau or collection agency, get Attorney Robert F. Brennan, APC, on your side. Located in Los Angeles, California, Brennan Law specializes in false credit reporting damage and can advise you of your consumer rights.