You work hard, and you pay your bills on time. You’re ready to stop renting, or perhaps you need a new car, but your past credit mistakes are driving up your interest rates. You’re looking for a new job, but are passed over, and you don’t know why. Many of us have been held back by past credit mistakes—are you?
High Interest Rates
Consumers with great credit get prime interest rates, such as when buying a home. Prime interest rates are the lowest rates the bank offers, but to get them, you need stellar credit. Subprime interest rates are the high interest rates that come with credit scores that have seen better days. How big can the difference be? Interest rates on home loans can be a full 5% higher (or more) for subprime borrowers.
Hidden Fees
Lenders want to be sure that they recover the money they borrow, and a low credit score means you are high risk to lenders. To offset potential losses, creditors will up the price of fees associated with getting a loan or line of credit. Monthly fees, application fees, origination fees, etc. are all sometimes higher for borrowers with a lower credit score.
Missed Job Opportunities
You might not think of an accountant as someone who would have less than perfect credit. Don’t forget that cosigning the wrong loan, a divorce, identity theft and more can lead to a low credit score. For people who work in financial positions or other areas where there might be a high risk of theft, some employers will only take on applicants with great credit. They see the high debt that can accompany bad credit as a high risk of losses. Why take a chance on that employee when they could hire someone whose credit gives them better peace of mind?
The Cost of Low Quality
You get what you pay for has become a colloquialism for a reason. Some products that come at a discount price don’t last, or work right, causing you to have to continually buy a replacement or fix that very low budget car once per month, eventually costing more than starting out with quality that will last from the start. How does that relate to credit? When you don’t have great credit and an appliance breaks or other high price items, you might not be able to replace it with a quality item if you can’t get financing, leading you to the more expensive cycle of poor quality products.
Missed Opportunity
Great credit opens doors. Rental car doors to be exact. Major US car-rental companies require a credit card, not a debit card, to rent a car. Hotels place holds for incidentals on debit cards that restrict access to your checking account funds for days. Add this to the higher cost of most everything when you have bad credit and vacations, even reasonably priced family vacations can quickly become out of reach.