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Bad Credit Cost More - High Interest Rates

Bad Credit Means Higher Interest Rates Which Cost You More Money

Last Updated: July 25, 2016

Having bad credit can cost you a small fortune over the course of your lifetime in higher interest rates. Think of all the money you are spending on interest every month on your home loan, credit cards, and auto loan. If you have bad credit or a low credit score, chances are, you are paying very high interest rates which translates into a lot of extra money spent every month.

In this tight economy, lenders are getting more and more choosey on who they lend money to and at what interest rate. If you have a low credit score, they are going to hit you with a high interest rate whereas a person with excellent credit, is going to enjoy the benefits of low interest and overall lower monthly payments. Which person would you rather be? Tough choice - huh?

Cost of Loans with Bad Credit

To illustrate our point, let's take two fictitious people, Bob and Nancy. Bob has a FICO credit score of 720, an excellent credit score, whereas Nancy's FICO credit score is 650, a fair to poor credit score. Now, let's look at a scenario where they are both buying a car for $20,000 on a 60-month loan.

Now, let's look at another example where Bob and Nancy buy a house for $150,000.

Long Term Affects of Bad Credit

In our examples above, we showed you the short term affects bad credit can have a person. Nancy has to pay so much more for the exact same products but what does that mean in the long run? Well, if they make about the same salary, the person with bad credit has less "fun" money at the end of the month. Money that could be spent on going out to dinner, taking a vacation, or maybe just investing it into a retirement account. When you have bad credit, more than just your wallet is affected. Bad credit affects your family, your well-being, and your overall quality of life.

People who have bad credit can never seem to get ahead of the game because they are spending so much more for the same things. That is why is it so important to work on increasing your credit score and cleaning up your credit. Removing negative items, consolidating loans, paying off debt, and paying your debts on time are all things each and every one of us can work on each and every month. A little effort can go a long way.

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Ways to Get out of Bad Credit Hell

Now that you see how much money bad credit can cost you, how do you get out of bad credit hell? It is really quite simple, but it will take some dedication on your part. Just think about all the money you are going to save for that vacation to the Bahamas and that should keep you pretty well motivated. Here are some basic tips:

Once your credit score increases, you can then apply for loans with lower interest rates. Get rid of all those high interest loans and you will start to see some extra money in your pocket at the end of the month. Your vacation on the beach in the Bahamas is really not that far away!

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