How Much is a Bad Credit Really Costing You?
Unfortunately, the difference between an exceptional and poor credit rating could cost you almost $ 400,000 over the course of your life, according to a recent study. This effect is much less exaggerated between exceptional and fair credit scores, but even then, interest payments could cost you tens of thousands of dollars. Here is a closer look at how many credit scores can will cost you your whole life.
Mortgage Interest Can Eat A Decade Of Your Income
According to a new study of Self, a fintech company, the average American will pay about $ 130,461 over their lifetime in interest charges. The breakdown by FICO credit score is as follows:
- Less than 620: $ 486,040
- 620-639: $ 158,512
- 640-659: $ 133,828
- 660-679: $ 114,803
- 680-699: $ 105,291
- 700-759: $ 98,045
- 760-850: $ 88,388
As Libra points out, the interest owed on the lowest credit scores amounts to 9.4 years of salary for the median full-time worker. Why is this effect so exaggerated? Well, since borrowers with a credit score of less than 620 cannot qualify for conventional loans, they are forced to take subprime mortgages who have much higher interest rates, which costs them a lot more money in the long run. This is why it is important to have a credit score above 620, so apply for a mortgage.
Interest on subprime auto loans can cost you a year of income
The study also looked at the lifetime interest cost of auto loans (based on the average prices of two used cars and four new cars over a lifetime and the respective interest rates). The breakdown by FICO credit score is as follows:
- 300-500: $ 87,523
- 501–600: $ 65,549
- 601-660: $ 39,031
- 661–780: $ 20,937
- 781-850: $ 14,545
What’s interesting here is that even with a decent credit score, a 100 point difference in your credit score will result in interest payments that are roughly equal to the annual take-home pay from a one-time job. partiel.
Credit cards are a little harder to measure
Credit cards are different because they are revolving credits, not to installare ready as you see with mortgage loans or auto financing. For this reason, it is not easy to measure the average lifetime interest against a borrower’s credit rating. There are other reasons for this, too: Borrowers typically need a credit score above 670 to qualify for a credit card, and many borrowers make payments on time before interest comes in. in force. By CNBC, the average lifetime credit card interest amount is $ 9,624.24.
How To Build Your Credit Score
Even borrowers with the worst credit scores can slowly rebuild it a few years from now, but he requires good credit behavior at the time. If your credit score is at its lowest, check out this article from Lifehacker that covers your options for building a good credit history from scratch.