The Cost of a Bad Credit Score
We’ve all heard that bad credit is a problem, but few people really understand why or to what extent. For people who avoid using their credit cards and try to pay only in cash, how your bad credit score affects you will be an even bigger question. But bad credit does not only affect the loans you try to take; it can impact many other aspects of your life that you may not have realized.
Mortgages and Rent
Your credit score will determine the size of the down payment you are required to make when buying a house, as well as the interest rate you are offered. With good credit, you will need to have a much smaller down payment and with a much lower interest rate, you will end up paying much less over the life of the loan. A bad credit score will cost you for however long your loan term is, if you are even approved for a loan. In truth, with bad credit, you may not be approved for a mortgage at all. What may come as more of a surprise is that more and more landlords are asking for credit checks when screening potential tenants so that a bad credit score may make it difficult to find a place to rent.
If you have bad credit you will not be able to get approval for a loan from a traditional lender such as a bank. Even if you are approved for a loan, the interest rate offered to you will be higher than if you had good credit and this will cost you significantly in repayments over the life of the loan. There are personal and business loans for bad credit available in the market, but these will give you limited options and also tend to have higher interest rates.
Limited Banking Options
Some banks will not allow a person with bad credit to open a bank account, especially if you have a history of bounced checks and overdrafts. It is possible to find banks that offer accounts even for people with bad credit, but you may find that these have limited options, higher deposit minimums and higher fees.
Your credit score will even follow you to insurance companies. Many insurance companies use your credit score to determine the premiums you will pay. Perhaps they reason that if you are irresponsible enough with your money to get into bad credit, you will be irresponsible with your property as well. Whether it is a car insurance or home insurance, you may find that your credit score follows you.
The Bottom Line
You may not be able to put a specific price tag on a bad credit score so that it is not really possible to know exactly how much it will cost you in the long run. However, you can see that a bad credit score will affect many aspects of your life which will cost you in stress, anxiety and money over the long term.