Bad credit can cost you money, we all know that, but most people don’t realize how expensive bad credit can be. Your credit score plays a big factor in how much to pay for your auto insurance, auto loan, mortgage and credit card monthly payments. If you have good credit credit you will pay less in interest and get better terms but if you have bad credit you could be paying a high interest along with other fees costing you more money. In this article we will discuss how much money bad credit will cost you.
Here Is What Bad Credit Will Cost You
Auto loans are available to anyone who wants to buy a new or a used car, but how much you will pay mostly depends on your credit score. For instance, if your credit score is 720 or higher you will qualify for the lowest interest rates but if your credit score is below 600 you will be paying the highest rate interest rates. Let’s look at the calculations if you have a $20,000 auto loan for 60 months using FICO rate estimates:
Credit Score Below 600
- APR: 18.8%
- Monthly Loan Payment: $499
- Total Interest Paid: $9,945
Total cost of bad credit: $126 per month and $7,537 over the life of the loan
Credit Score of 720 and Above
- APR: 5.67%
- Monthly Loan Payment: $373
- Total Interest Paid: $2,408
Bad credit can cost you tons of money when it comes to credit cards. If you have a credit score below 600 you won’t get approved for unsecured credit cards and will need to start with secured credit cards until you increase your credit score.
A secured credit card is a type of credit card that requires a deposit and that deposit will be used as your credit limit. For example, you apply for a Citi Secured MasterCard that requires a deposit minimum of $200. That $200 will then be used as your credit limit, meaning you can spend up to $200 to use your credit card. Secured credit cards not only includes a low credit limit where you can’t spend a lot of money to use it, but it also has very high-interest rates averaging around 23% APR.
Related: Best Credit Cards For Bad Credit
Where bad credit will really cost you is you will be missing out in the opportunities to make extra money with your credit cards. People with good credit, a FICO Score of 720 and above, will get the best rewards, cash back options, and sign-up bonuses.
Related: 8 Best No-Interest Credit Cards
Your mortgage annual percentage rate (APR) can vary by over 1.5% depending on your credit score, according to myFICO. While it may not seem like a big amount it can really add up over the lifetime of your mortgage loan.
The minimum credit score you need to get approved for a mortgage is 620 and above. The average mortgage loan monthly payments is typically a 30-year loan. For example, we will calculate the payments for a 30-year mortgage at a fixed rate on a $250,000 house with bad credit compared to good credit.
Good Credit: 760 or above
- APR: 02.7%
- Monthly Mortgage Payment: $1,197
- Total Interest Paid: $181,076
Bad Credit: 620 or lower
- APR: 6.16%
- Monthly Mortgage Payment: $1,438
- Total Interest Paid: $267,579
The total cost for bad credit will cost you $241 per month and $86,503 over the life of your loan.
Renting An Apartment
Having bad credit can affect your ability to rent an apartment in two different ways.
The first, when you fill out a rental application the landlord can deny you for having bad credit. Most landlords will trust a person who has good credit as they feel like less of a risk than someone who has bad credit. The credit score range for renting an apartment will be determined by the landlord, as some landlords are more willing than others to rent to someone with bad credit. The ideal credit range you want is anything over 650.
The second way bad credit can impact your ability to rent is that the landlord might require a larger security deposit or pay the first month in advance. Landlords can determine how much they charge you for a security deposit because the amount they advertised is based on someone who has good credit. If you have bad credit you are more of a risk to the landlord and if you can’t pay rent they at least have your security deposit to cover a month’s expenses.
When you move into a new place, one of the first things you do is to turn on your utilities such as water, electricity and internet. If you have bad credit chances are the utility company will make you pay a large deposit when you open an account. The amount the deposit can be will depend on the state laws where you live. You could have to pay anywhere from a month’s worth of utilities to several months, and they can hold that deposit for up to a year before they the money is credited to your account. You might be able to get your deposit back at a faster rate if you pay all your bills on time.
To help you lower your utility bills you can sign up for BillShark and they can negotiate your utility bills such as internet, tv, phone, and more. They work with companies like AT&T, Comcast, Verizon, Direct TV, Charter Communications, and more.
How To Save Money With Bad Credit
As we have learned from above, bad credit can cost you thousands of dollars if you don’t come up with a way to fix your credit. Luckily there are two ways you can save some money when you have bad credit.
- High Yield Savings Account
Due to bad credit, you will be spending more of your hard-earned money on higher interest rates for credit cards, auto loans, and mortgages not to mention higher deposits on rentals and utilities. One way to save money is to open a high-yield savings account. Putting your money into a high-yield savings account can grow your savings account 12 times more than regular bank accounts and these accounts have FDIC insurance so you know your money is safe and insured. Here is our top pick for a high yield savings account.
- Earn 0.20% APY on balances of $10,000 and greater (3X the national average)
- No minimum balance required to open
- No monthly maintenance fees
- 24/7 access to your funds with easy digital banking tools
2. Shop Around For The Best Rates
When you have bad credit and will be paying higher interest rates and deposits when you buy something, the best way you can save yourself money is to use a tool that will compare your rates for you. The tool we suggest using will automatically compare all the loans you are qualified for so you can see them side by side to find the one that best fits your needs. The tool we suggest is Super Money. You can use this website to shop for the best rates on personal loans, auto loans, business loans, student loans, checking accounts, taxes, and more.
There really is no way around it, if you have bad credit it will cost you thousands of dollars. The only way to avoid these extra costs is to fix your credit score so lenders are more apt to approve you for loans and credit cards. You can sign up for our easy credit repair course, The Credit Repair Blueprint.
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