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Can A Poor Credit Score Cost You Money?

Your credit score is an important indicator to lenders of how likely you are to pay them back. Credit scores can affect your interest rates, insurance premiums, and ability to qualify for a credit card. A poor score will cost you money due to the higher rates that you will pay on loans and your mortgage. If your score isn’t too bad, you most likely will be able to qualify for new credit, but it will be much more expensive and offer you less favorable terms.

Higher Interest Rates On Loans

Interest rates will very quickly creep up, as your credit score drops. Sometimes the difference of 100 points on your score can equate to tens of thousands of dollars over the lifetime of your loan. If this were not a big enough difference, the chance that you will be able to qualify for the loan in the first place with poor credit, will be much lower. During this recession, lenders have been much less likely to give out money, this makes having a good score even more important. Repairing a bad score can be done with professional help or on your own. It is much easier to maintain a good score, than to recover after a default or bankruptcy.

Inability to Access New Credit

A lower credit score gives a consumer less opportunity to qualify for a credit line or new credit card. If your score is below 650, there is a much greater chance that you will only qualify for cards with unfavorable terms. These cards will have higher interest rates, less rewards, and sometimes even poor customer service.

If you are having trouble qualifying for a low interest rate credit card, you might want to try a secured card. These cards will be automatically approved in most cases. The money for a secured card is drawn out of a prepaid account instead of line of credit. Most secured cards report all transactions back to the three major credit bureaus. Over time, responsible use of a secured card will also allow you to build your credit. If you establish a good history with a bank that offers a secured card, they may allow you to move to an unsecured card in a year or two.

Auto Insurance Rates

One thing that can be affected by a lower than average credit score are your auto insurance premiums. Statistically, low credit scores can be accurate predictors of future payment and poor driving. This would mean that people with a low score would, on average, drive less responsibly than people with normal scores. Unfortunately for good drives that have less than perfect credit, they will get lumped in with everyone else.

Tips To Fix a Bad Score

Improving a poor score will take some time, but it is possible, even with a bankruptcy. Credit repair can be done by a professional service or on your own. Techniques that can be used to improve the scores are paying down debt, using a credit builder loan, and improving your credit to debt ratio.