Your Bad Credit Could Cost You $1 Million

I've written a lot about how your credit score can impact a wide number of financial issues in your life including Many Americans Don't Check Their Credit Reports -- Could be Losing Thousands and Why Even Dave Ramsey Needs to Consider His Credit Score. But here's a piece that will REALLY show you the impact of a bad credit score. For the same author who told us we could save $1 million by not watching TV, we now learn we can save $1 million by keeping our credit score healthy (BTW, this guy's already saved us $2 million -- a few more of these posts and we'll all be rich!) Here's an overview of the piece:

For people with poor credit, the additional money they'll pay for things like mortgages, car loans and insurance, compared with what those with solid credit pay, can be in the mid-six figures over a 30-year period. Invest it wisely, and that number could soar to more than $1 million.

Here's how much more someone with bad credit pays versus someone with good credit on various expenses:

• Mortgage: $288,000
• Car loans: $19,008
• Credit cards: $7,260

Then, if this money was saved and invested:

If the person with good credit took the difference and invested that money in an account that earned 8% compounded annually for 30 years, he or she would have well over $1 million saved. In fact, investing the $800 difference in the cost of the mortgage alone would be worth $1.2 million.

The piece goes on to say that a bad credit score can impact you in many other ways: higher insurance costs, keep you from getting a job, influence your ability to rent a place, force you to pay deposits and even impact your health. Since your career is your most important asset, if your bad credit keeps you from getting a raise or two (through eliminating you for a better-paying job you wanted), it could have even more of an impact that what is calculated above.

That said, I doubt that many people will really be out $1 million if they have bad credit. That said, it's almost a certainty that they will pay some extra amount of money because they have bad credit -- and it's likely that the extra amount will be significant. And even for me -- someone with no mortgage, no car loans, and who pays off my credit card every month -- having a bad credit score could cost me some money and impact my life in many other unpleasant ways. That's why I want to make sure my credit is always good.

Comments

[Andrew]

Wow! Commonsense credit management can pay off handsomely, can't it? I read the author's previous article about how to save a $million by turning off my television, and thought..."We have 3 televisions in our house. If we keep them all off, all the time, we might be able to replace our employment income and retire in about 10 years...." Ok, kidding, but the author's point, in both these articles, reinforces the sort of common sense financial and resource management Ben Franklin counseled in his Poor Richard's Almanac, lo these two hundred plus years ago. Thank you for a wonderful site!

[Jake]

Actually, if you have bad credit you probably can't even *get* a mortgage in this credit environment.

[Minimum Wage]

So my credit went in the tank with an extended illness without income. I'm working again but I can't get my credit out of the tank on a minimum wage income.

So I should be poor and broke the rest of my life?

Isn't bad credit a lot like a self-fulfilling prophecy? Your credit is bad, so the only credit you can get (if any) is on very unfavorable terms (e.g. higher periodic payments and interest rates, and/or longer repayment), which GUARANTEES - other things being equal - poorer repayment performance.

[John]

I am a BIG promoter of dave ramsey and his discusions on credit however my wife and I were at a cross roads so we decided to call a credit repair company. Maybe we got lucky but our past was keeping us behind. We followed thier instructions and were able to refi'd our house to a fix rate paid off some other debts and saved over 900 per month, now I know Mr Ramsey is shrilling right now but we were saved and actually can breath every month. The lady I spoke with first was an owner/operator of transunion for owner 25 years and RJ the guy we worked with was a former mortgage guru, they make a great team and we are in their debt forever.