How Much is Bad Credit Really Costing You

How Much is Bad Credit Really Costing You?

Let’s take a look at two examples to see how your current credit situation could be costing you thousands of dollars in higher monthly payments:

Lisa, Tammy, and Tim are best friends who each want to purchase a new car.

They all decide to buy a 2008 Honda Accord. The base price for this car is $25,000. They each buy the exact same car at the exact same price, financing it for 5 years.

Since each one has a different credit score, each of their monthly payments will be different:

Name	Credit Score	Price of Car	Interest Rate	Monthly Payment
Lisa	730	$25,000	5.5%	$496.63
Tammy	650	$25,000	9%	$539.72
Tim	525	$25,000	14%	$604.97

Notice that they all bought the exact same car, but because of a lower credit score, Tim is paying $108.34 more PER MONTH than Lisa is. By the time his car is paid off, bad credit will have forced him to pay $6,500.40 MORE than she will. That’s an example of how much bad credit can cost you.

As your credit score goes up, you qualify for lower interest rates. This means that you pay much less to borrow the same amount, compared to someone with credit problems.

Here's another example. The following chart shows the interest rate and total interest they could expect to pay if they each bought a $150,000 house with a 30-year fixed-rate mortgage:

Name	Credit Score	Price of House	Interest Rate	Total Interest Paid
Lisa	730	$150,000	5.5%	$165,000
Tammy	650	$150,000	7.25%	$210,000
Tim	525	$150,000	10.25%	$304,000

Look at the amount of interest Tim will pay, because he has bad credit! By the time his house is paid for, he will have paid over $450,000 for a home that only cost $150,000. His bad credit will force him to have to pay $304,000 in interest.

Your monthly payment can change by as much as 30%, based on your credit score alone! More importantly, the total amount of interest paid throughout the term of the loan can fluctuate by as much as 50 percent.

Don't be a victim of bad credit.