Living on borrowed money is a reality of modern life. You can survive living completely debt-free, but for most people, that would keep them from enjoying many of the modern comforts we’re accustomed to. Carrying debt, whether it be from credit cards, car loans, or a mortgage, is a part of life for most people. It’s not shocking when you look at the cost of a home or a car. Debt is a part of life. What matters is how you manage it.
In a society where most people carry debt, having a low credit score will cost you more in the long run. In this article, we’ll take a closer look at how low credit scores cost consumers more money and what you can do to raise your credit score to save more in the future.
The Cost of Bad Credit
Most people underestimate the cost of poor credit. Every little tick in interest rates for credit adds up and more quickly than you may realize. How much you pay in interest depends entirely on how good you’ve been in the past about repaying your obligations. The more diligent, the better your credit score.
The average new car price is about $30,000. Someone with good (not perfect) credit could get a 60-month car loan for about 3%. If your credit isn’t horrible, but it’s not great, you might get the same car loan for 10%, which will cost you an additional $3.23 per day, every day, for five years. The person with good credit will have saved nearly $6,000 by the time their loan is paid. That’s significant and is a good illustration of how a low credit score can cost you more.
The Cost of a New Home with Bad Credit
The single biggest purchase an average person makes in their lifetime is a home. American homes average $200,000. After a 20% down payment, the average mortgage amount is roughly $160,000. The most common mortgages are set for 30 years.
The difference between interest rates for people on the better end of average is 4%, and at the low end of average is 7%, which comes out to an extra $102,000 over the course of the mortgage. That’s not even total interest, it’s just the extra you pay for bad credit. The difference in interest could give you a nice annual vacation every year for 30 years.
Save More Money with Better Credit
The above are two extreme examples to illustrate how much credit scores can affect you. But it happens on every level of credit. People with bad credit that don’t own a car or a home are still losing money on high credit card interest rates.
It can be frustrating to know how much extra you spend because of bad credit. Fortunately, anyone can repair their credit if they’re willing to follow the right habits and put the work in. Meeting with an experienced credit repair company can accelerate your credit repair journey and start saving you money faster than you think. There are small changes you can make today that will pay off big down the road. Before you know it, your credit will be excellent, and you’ll enjoy the benefits of modern life without the high-interest burden.
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