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The Cost of Poor Credit

Credit is often one of the most overlooked differences between the rich and the poor. Many people have almost no concern for their credit score. This explains why so many companies out there make so much money on just telling someone their credit score. These companies don’t even help people fix it; all they do is tell them whether it is good or bad. Most people understand that they have a credit score and what the number is, but it really ends there. Understanding what the ramifications for having certain scores and what that will physically cost you in the long run makes getting your credit fixed a much cheaper and viable option.

As of October 2012, the average FICO score is 689 according to MyFICO.com.

If we are going to just talk averages here let’s do our math with the average American credit score and see what they are missing out on. Let’s first lay out the parameters as to what credit scores qualify you as.

750+ Excellent: 749-700 Good: 699-650 Fair: 649-600 Poor: 599 or Below Bad

Let’s use a 25,000 dollar car as an example of what it would cost you.  If you are going to buy a 25,000 car and get a loan you will probably have to put 5 thousand dollars down and finance the rest of the 20 thousand. This is a very common car scenario. The 20 thousand dollars will be spread out over 5 years plus interest. If you have excellent credit you will often qualify for 0% APR financing, meaning you do not have to pay interest. This puts your monthly payments at $333.33. If you have fair, poor, or bad credit you will probably be getting a loan at 5% or more depending on how bad it its. For arguments sake let’s say it is 5%. You buy the same car for the same price but you don’t qualify for the 0% financing deal so your monthly payment with the 5% is now $377.42 cents.  The difference between the two payments for you is $44.09 for 5 years that comes out to be $2,645.48. That is a huge amount of money to spend on literally nothing.

Now when you factor in that the average American every single time they buy a car is spending that much more money than someone who has a high credit score, it is no wonder why some people are never able to be rich. Your credit score can drastically affect the financial security of your life no matter how much you make per year. When credit repair websites are asking you for a few hundred dollars and you say that is too expensive, you must think about all the extra money you will be paying for the rest of your life if you never fix your credit score. When you do this same type of scenario on a house, it becomes such a large number that it is scary. Fixing your credit can be the smartest financial decision you will ever make.

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