Having a Bad Credit Score Can Cost You $200k

Here's a piece from MSN Money that says the lifetime cost of bad credit is over $200,000. They detail how they got to this number, but the short version is that if you have a bad credit score you end up paying more for all sorts of things -- mortgages (where half the $200k costs lie), auto loans, credit cards, home equity loans -- basically whenever you borrow money.

Of course, if you never have to borrow money, then you can avoid these costs anyway. But if you have a great credit score, you'll also save on many non-loan services that have nothing to do with borrowing money. An example: we save a bundle on our homeowner's insurance because of a good credit score.

So even if you're Dave Ramsey, you need a good credit score. That is, if you want to save money. Ok, maybe it's not $200k (and it may not even be the $100k you can save from using coupons) but even if it's "only" $50k, isn't it worth the effort?

Comments

[Jonny]

So can writing off two Aston Martin Db9's

[billyjobob]

I checked my credit score a couple of years ago. It was pretty good. But, It wasn't at the top like I thought it would be. I have never been late with any payment when I did use credit and I pay all my bills on time so I thought I would be as high as anyone could be. I called the company to see why, and they told me it was because I wasn't using any credit at that time and the only info they had on me was from several years ago when I had a car loan. That was correct. I took out loans when I bought my home and when I bought my first 2 cars. Since then I have payed cash for everything. My last 2 cars I just payed cash.
Mostly I had just checked it out of curiosity. I don't need credit now and I expect I'll never need it in the future. If I ever buy another home I'll probably pay cash for it...unless the interest rates are so low that it makes it an advantage to take the loan. But I don't expect to ever need credit again.

[Budgeting in the Fun Stuff]

Our credit is excellent but we hope we hardly ever have to use it again. We should be able to buy all our future cars and homes with cash.

We do take out those 0% loans when they're offered for something we were buying anyway (like our bedroom furniture). I like putting the money aside and seeing how much interest builds up for us before we send them the check for everything...I picture them depositing the check and shaking their heads over the 25% interest that was waiting for them if we forgot. It's made us about $160 in interest from the two times we've done it. :-)

[Troy]

This is a bit inaccurate.

First, what costs $200K is borrowing money, not the credit score. That is simply a number.

Second, a credit score and a credit report are two different things, which both differ from credit history.

3 terms. 3 meanings.

A credit score doesn't mean squat unless you are borrowing money. That is it.

A credit report, whcih details your credit history is important. Not because of some FICO number, but because what matters isn't whether your history is good, but that it isn't bad.

I repeat for all the credit score lovers. Good credit is not the barometer. Bad credit is.

Bad credit history hurts you. No credit or good credit do not harm you for non borrowing transactions like employment, insurance, etc.

[KH]

When I refinanced my mortgage last year, I discovered that I had the absolute top credit score. Awesome--because I got the absolutely lowest new rate on my new mortgage.

It's easy to bet a high credit score because it's mostly based on spending lots on credit and then paying it back quickly. If you are someone who usually pays cash for everything, this is easy--just charge everything on your card, or take out an auto loan, and then just pay it off right away with cash.

I remodeled my kitchen and put everything on the credit card and then paid it from savings a month later (in addition to helping my credit score, I got cash-back points on the card). Also, I purchased a new car with financing from the dealer (which they gave me with a horrible rate, but who cares because I paid it off immediately), and then paid it off with cash from my savings. You could probably do the same thing with a HELOC if you don't have a high balance card.

Plus of course you absolutely have to never ever miss a payment on a card or on any of your utilies. I guess I don't find this very hard to do either. I just pay every bill online as soon as I receive the bill in the mail/email.

[Apex]

Hate to burst your bubble KH but you did not have the "absolute top credit score." When talking about a FICO score the highest possible score is 850. You did not have that number. No one actually gets it. You probably had what the lending institution considers the top credit score category or range. That used to be around 720 and above for many things. More recently institutions have moved that range up to around 750 or 760 to get the best rate for being in the top credit score category. So while you had a good score, saying you had the absolute top score is kind of like saying you aced a test because you got an A. You can get an A without getting 100% but it's not the highest score possible even though its the highest grade.

[KH]

It was 830---the effective top credit score.

[kitty]

When I checked my score it was good - 800, but not great. I think the reason is that my mortgage is paid off. I do use cards and pay them off immediately, so my utilization is extremely low - usually under 1% but it varies month-by-month. But they like different type of loans, and I only have credit cards - no car loans or housing. I am a bit concerned that it might go down when 10 years passes since the time I paid off the mortgage: I read somewhere this is how long they keep it. I hope it's wrong. Seems strange that they wouldn't keep it forever, if this is true. After all, the fact that one's mortgage is paid off should be a positive, not a negative.

I don't really need to borrow anything, but because of insurance cost and such, it matters.