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How A Bad Credit Score Can Hurt You

While most people assume that a bad credit score simply means it’s harder to obtain a line of credit to purchase larger items, it actually means you are going to literally be throwing away money. People with a bad credit score actually spend more money on larger purchases than those with good credit. Here’s why. 

Obtaining a Credit Card with a Bad Credit Score

When you have a bad credit score, you are not eligible for premium credit cards. A premium card has more desirable interest rates, credit limits and payment terms, which can make it easier to maintain a good payment history. Consumers that have a bad credit score it will find that the only cards they might be eligible for are less attractive credit cards. These cards often require extremely high fees, low credit lines, additional monthly fees and even cash deposits. In many cases, these cards also fail to report your activity to the credit bureaus which makes it difficult to establish a positive credit history. Improving your bad credit score can be very difficult using some of these lower quality credit cards.

Buying a Car with a Bad Credit Score

If you are attempting to buy a car with a bad credit score, you are not going to qualify for low interest rates. This means you are going to spend a lot more in additional interest payments. The additional interest might not be that noticeable on a month by month basis. However, when calculated over the life of the loan, it could very well mean up to $6000 out of your pocket.

A loan for $25000 on a 5 year term: 

Credit Status Interest Rate Monthly Payment Extra Interest Paid
Excellent 8% $507 $0
Poor 12% $556 $2,952
Bad 16% $608 6,062

Buying a Home with a Bad Credit Score

Obviously the effects of a bad credit score can be seen when making large purchases such as a new home. For most people, a home is going to be the largest purchase they will make in the course of their life. A person with a bad credit score might end up paying up to $3000 of interest every year on their home loan. This can total up to $100,000 in additional interest just over your credit score.

A $200,000 home loan on a 30 year mortgage: 

Credit Status Interest Rate Monthly Payment Extra Interest Paid
Excellent 7% $1,331 $0
Poor 9% $1,609 $66,140
Bad 12% $2,057 $99,019

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