One thing for sure is that bad credit score costs you over lifetime, but the question you may ask is how exactly it will cost you. No one want to have a score that is considered subprime or below stellar levels. A bad credit score will actually make life more expensive in a variety of ways. From the higher interest rates, through larger deposits, to the more expensive premiums, consumers may have to deal with many challenges.
No two persons can have same credit appetite meaning that you cannot determine how much it will cost different people. It depends on how they treat their credit worthiness, and the kind of payments or borrowing they make. If you lean heavily on credits instead of using cash payments on things you buy, then you could have to deal with larger penalties.
If you have low credit score, then you are disadvantaged in borrowing mortgage loans. Although you can be granted these kinds of loans, you have to bear the cost of high interest rates. Worst still, you could even be denied the credit facilities if you are in a bad situation as far your score is concerned. Information from Informa Research shows that the average rate of interest that is levied on a 30-year fixed rate home loan or mortgage for consumers who have a score of 760 and above is about 3.8 percent.
However, if you have a score of about 650, then the same mortgage would most likely cost you about 4.9 percent in interest rates. Considering the period of the mortgage, that difference can amount to a lot of dollars. If you have to borrow a mortgage loan, ensure that first you repair your credit. This is a credit facility that can cost more than decades of high interest rates. The same applies to credit card holders.
On average, the interest rates on credit cards are about 15 percent with some issuers charging more. Credit cards debts can prove to be very expensive than any other service you get. The cost of having a poor credit score in relation to credit card debts presents more pronounced costs than other financial services. On a subprime credit, it is not uncommon for consumers to pay more than 30 percent on credit card debts. This is definitely too high and it could lead to financial instability.
Many consumers may maneuver this trap by seeking for credit card transfers offering 0 percent intro rates. However, this might not apply in all situations. If you have a loan that will take you more than two years to repay, then using the 0 percent intro rate cards can be a big challenge. Remember the interest rates from these cards shoot up heavily after the intro period is over.
Any remaining balance on your debt may be charged too high thus bringing you back to the same financial problem you were in before acquiring the new card. If you have a credit card debt of $5,000 and it attracts an interest of about 30 percent, and you make the minimum payments, you might end up paying over $130,000 dollars, and the debt takes about 30 years or so to do away with. This isn’t easy.