Every day, when faced with having to make some tough choices regarding debt which will impact their credit, people tell me they just don’t care about their credit or just don’t need their credit. I am always amazed. Don’t they realize that having bad credit can cost them thousands of dollars a year?
Employment
Having bad credit can literally cost you your job. Most employers pull credit these days as part of a background check. With all the applicants flooding the market, given the same job experience and skill sets, who do you think is going to get the job: the applicant with good credit or the applicant with bad credit?
Credit Cards
Though the future of credit card interest rates and processing procedures is up in the air due to the new credit regulations which will take effect, there are still some good deals out there for those with good credit. Obviously, good credit leads to lower interest rates on cards. In addition, if you have good credit, some companies are still doing 0% interest on balance transfers for up to a year. Other “good credit” credit card users can earn points which can be redeemed for free travel or other rewards.
| Mortgages | |||
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$150,000 home paid over 30 years:
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| CREDIT STATUS | RATE | PAYMENT | COST OF BAD CREDIT |
| Perfect | 5% | $805.23 | $0.00 |
| Mildly Damaged | 7% | $997.95 | $69,379.20 |
| Damaged | 10% | $1,316.36 | $184,006.90 |
| Auto Loans | |||
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$20,000 car paid over 5 years:
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|||
| CREDIT STATUS | RATE | PAYMENT | COST OF BAD CREDIT |
| Perfect | 4% | $460.41 | $0.00 |
| Mildly Damaged | 8% | $506.91 | $2,790.00 |
| Damaged | 15% | $2,790.00 | $7,278.00 |
Insurance
Your insurance score is directly calculated using elements of your credit report: outstanding debt, bankruptcies, length of credit history, collections, new applications for credit, number of credit accounts in use, and timeliness of debt repayment. Information such as income, ethnic group, age, gender, disability, religion, address, marital status, and nationality are not considered when calculating an insurance score. Just like your credit score, the method for calculating your insurance score is secret.
Having “bad credit” can mean you pay twice as much for your home or auto insurance than if you had “good credit”. I’ve seen several studies which justify the use of credit-based insurance scores in setting insurance rates. Here is a study showing there is a relationship between bad credit and the number of insurance claims.
Of course, there are other things which factor into your insurance rates such as: where you live, the type of coverage you want and what your car and home are actually worth. Most states have restrictions on how credit information may be used in the relationship to insurance underwriting.
What You Can Do if You Have Bad Credit
It’s never too late to start over. Start with our free credit repair guide and our free debt articles.
Have you lost money due solely to bad credit? Tell us about it by leaving a comment!
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I think you meant somehting else under damaged credit….
Auto Loans
$20,000 car paid over 5 years:
CREDIT STATUS RATE PAYMENT COST OF BAD CREDIT
Perfect 4% $460.41 $0.00
Mildly Damaged 8% $506.91 $69,379.20
Damaged 15% $2,790.00 $7,278.00
Sure credit cards are convenient but they really aren’t worth it if they are misused. They can cost you your chance at a job, your best chance at interest rates for major purchases like houses and cars. Not to mention student loan rates for your kids. With bad credit from credit card debt the difference in total payback for loans is astounding. The best way I manage my finances is not using credit cards. If you want to live within your means and get good rates on loans I would recommend doing a search to find a good card . That way if you have the money to spend it you can and if you don’t, well then you don’t buy it. Good credit ratings will then be in the forecast!
Sometimes it isn’t the person’s fault. I trusted my husband when he said he’d pay my bills for 2 years if I gave him a quickie Nevada divorce with no assets and no debts listed; he said I could bank on his “U.S. Marine’s word.” Turns out he didn’t pay any of them. Love and misplaced trust got me and ruined my credit.