The High Cost Effects and Consequences of Low Credit
Having less than stellar credit is a lot more than just feeling embarrassed when your application for credit at the car dealership gets turned down. No one likes the sting of shame that often comes hand in hand with the pitying looks the salesmen give you when they sit down and ask if you have anyone who can co-sign for you. Having bad credit is far more than that.
How Much Does it Cost?
In order to get a good idea just how much your credit can impact your life, let’s compare interest on an auto loan for someone with pretty good credit and someone who has bad credit. If you were to purchase a car and finance it for a period of 6 years, or 72 months your monthly payment at 9% interest will be a little over $270 a month.
For someone with good credit, but now great enough to get a 0 interest loan, will have to pay about $220 over 72 months at an interest rate of %1.99. That’s a difference of about $50 a month, or $3,600 more over the life of the loan. Doesn’t sound that bad? Let’s take a look at a home loan.
If you were to borrow $350,000 at 4% to either buy a new home or refinance an existing one, your monthly payment would be about $1,670 for 60 months. The total amount of money you will pay for that home over the life of the loan is about $601,500. That means you are paying about $250,000 in interest payments alone.
That is for someone with decent, but not great credit. For the person who does not qualify prime, but still able to squeak by with a loan will pay about $3,100 a month for a total of about $1,127,000. For your less than perfect credit you are going to end up paying about $777,000 in interest. That means you have basically paid for two houses rather than the one. That my friends is the cost of bad credit!
The Emotional Toll of Bad Credit
That is just part of the story. It’s much more difficult to quantify the psychological cost of having poor credit, but that can sometimes be far worse than the dollars and cents of bad credit. Here are some of the problems that come along with bad credit. Good credit means you have access to funds that are above and beyond what you might have the bank.
It means you can use the equity in your home as cash when you have unexpected expenses that you didn’t count on. You’re not limited to what you can beg borrow or steal from friends family, and relatives. You just go online and in 60 seconds you have a pipeline of 5, 10, 15,000 dollars in cash to be used at your discretion.
Need a vacation? Put it on your platinum card at 1% interest. You plan and budget and try to be ready for anything that might come up, but you just can’t anticipate everything and if you have access to credit, you don’t have to. If you have bad credit you have very limited resources and it can be a scary thing when you realize that even the smallest unexpected bill is a complete disaster! You don’t have the resources to weather life’s financial ups and downs and that alone carries with it a lot of stress.
A huge percent of divorces are caused by financial problems, and arguments over money is cited as the most common issue between married couples. Just imagine what a huge relief it would be to suddenly win the lottery. Money can’t buy happiness, according to the old saying, but it sure can buy quite a lot of peace of mind.
You Can’t Afford It
Unless you’re independently wealthy you can’t afford to have a 500 tri-merged credit score. Money used to make the world go around; today it’s credit. It’s not just you and I, or businesses big and small that rely on credit, our country could not run without being able to borrow billions of dollars from other countries, in the form of government bonds.
Our primary creditors are China and Japan and have been for many years. There’s been a lot of talk about our countries debt being downgraded and what would happen if we could not borrow as much as we have been accustomed to borrowing.
Just like you and I, if we have poor credit we cannot borrow as much and we have to pay a higher interest rate which also puts us more in debt. The US is dependent on Japan and China purchasing our bonds and it would be a catastrophe if they stopped buying our bonds. It’s also important that we are able to get money at a low interest rate.
US debt still has a triple-A rating but with a negative outlook, meaning that downgrade is likely. Just like you and I have a limit to the amount we can borrow, so does our government. Officials are trying to get that limit raised as well as keep Agencies like Standard & Poor’s or Fitches from downgrading our debt; both could potentially put our country in a rough spot.
Bad Credit is Tough to Repair
It’s a whole lot easier to maintain good credit than it is to repair it after you have gone from 780 to 486. Save yourself money and headaches by maintaining your credit. It’s just a whole lot easier to live in a world that revolves around credit when yours is good, so guard your credit jealously and you’ll be happy you have another resource at your fingertips in time of need.