How can a poor credit score affect me negatively?
Per a study by the Federal Reserve Board, 79% of credit reports have errors or inaccuracies. It is those inaccuracies that can cause potential lenders to see you as a “credit risk,” making it difficult for you, as a consumer, to procure car loans, home mortgages and lower credit card APRs.
Even if you can obtain a car loan or a home mortgage, a poor credit score can still be costly by way of inflated interest rates and penalties. For example, let’s say you have a relatively low, outstanding home mortgage of $150,000. The chart below shows how bad credit can result in exaggerated interest rates, leading to an excessively expensive home mortgage rate. At its worst, a poor credit score can nearly double the cost of your new home!
The same holds true with automobile loans. As the chart below indicates, a poor credit rating can result in thousands of dollars extra in overall interest costs. By improving your credit score just a few points, the money you save can be enough to fill your gas tank for the entire month.
Let`s assume you are carrying $8,000 in credit card debt. Additionally, let`s assume that you budget $175/month to service this debt. Below are the results of bad credit, average credit, and excellent credit scores on your payment "sundown" and amounts.
As shown, a consumer with bad credit will pay more with higher interest rates, and at a high APR, consumers with bad credit can make minimum payments and yet remain in debt for decades. Bad credit means higher interest rates, period.
Fixing your bad credit ultimately saves you money, and even a few points’ improvement on your credit score can save you thousands of dollars in the long run. Optimizing your credit profile by disputing inaccurate data can help you get the financing, and low interest rates, you deserve.