The Cost of Bad Credit
When it comes to your credit score, if you aren't making the
appropriate financial decisions to keep it as high as possible, you are playing
with fire that could cost you hundreds of thousands of dollars.
In recent times lenders have had to become more selective about who they loan to. As a result, the difference someone will pay with bad credit versus good credit is substantial. Lower scores can drastically change your financial situation your whole life.
I've created a scenario to contrast the situation between two women who make the same financial purchases and moves over the course of their life. They are teachers at the same school; they live in the same area, and have similar income and family. The only difference between the two women is their credit scores:
Sally has a FICO credit score of 740 and Sara has a 620.
Sally maintains her good credit by:
• never maxing out her credit cards
• applying for credit sparingly
• paying her bills on time
Creditors value this type of borrowing and reward Sally by offering her more credit, increasing her credit limits, which permits her to spread her balances across several cards. Sally knows how important her credit score is and takes the necessary steps to protect it.
Alternatively, Sara's poor credit is a result of:
• missing one semester of work unpaid because of a medical issue
• sometimes maxing out her cards
• sometimes doesn't make her payments on time
This type of financial behavior discourages lenders to extend more credit. Sara tends to spread her balance across fewer cards than Sally resulting in a lower ability to negotiate lower interest rates.
Sally and Sara borrow the same amount of money over their lifetimes but spend different amounts because of their credit scores.
In recent times lenders have had to become more selective about who they loan to. As a result, the difference someone will pay with bad credit versus good credit is substantial. Lower scores can drastically change your financial situation your whole life.
I've created a scenario to contrast the situation between two women who make the same financial purchases and moves over the course of their life. They are teachers at the same school; they live in the same area, and have similar income and family. The only difference between the two women is their credit scores:
Sally has a FICO credit score of 740 and Sara has a 620.
Sally maintains her good credit by:
• never maxing out her credit cards
• applying for credit sparingly
• paying her bills on time
Creditors value this type of borrowing and reward Sally by offering her more credit, increasing her credit limits, which permits her to spread her balances across several cards. Sally knows how important her credit score is and takes the necessary steps to protect it.
Alternatively, Sara's poor credit is a result of:
• missing one semester of work unpaid because of a medical issue
• sometimes maxing out her cards
• sometimes doesn't make her payments on time
This type of financial behavior discourages lenders to extend more credit. Sara tends to spread her balance across fewer cards than Sally resulting in a lower ability to negotiate lower interest rates.
Sally and Sara borrow the same amount of money over their lifetimes but spend different amounts because of their credit scores.
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