If you have a low credit score, you’ll pay more for certain expenses. Whether it’s a car loan, a mortgage loan, car insurance or even the rent on an apartment, the lower your credit, the more you’ll pay. Lenders and financial service providers rely on credit scores to define if a customer can actually pay his or her bills on time. Those who skip paying bills or delay payments are considered a risk by nearly all lenders.
Most lenders consider a FICO credit score of 640 or below as poor credit, so if your credit score is below that, chances are you will pay more for personal loans, credit cards and other financial options. In many instances, you may even be denied credit, so keeping your credit score at or above 740 is important.
Here are five things that will cost you more:
1. Your Mortgage:
While it’s nearly impossible to get a mortgage with bad credit, in the event that you are able to do so, your interest rate will be quite a bit higher than someone with a higher FICO score. Over the course of a 30-year fixed-rate mortgage, that comes out to tens of thousands of dollars in interest over the full thirty years.
2. Credit Card:
Once again, that low credit score may keep you from getting that credit card, but if you do, expect to pay interest rates up to 35%.
3. Auto Loans:
Automotive finance companies will definitely charge a higher interest rate if you have a low FICO score! Those ads you see on TV only apply to “well qualified” customers. The better the FICO score, the better the interest rate you’ll get.
4. Insurance:
Surprisingly, your credit score also affects interest rates on your home and your car! Most insurers believe that both homeowners and drivers with excellent credit scores are likely to file fewer claims and get into fewer accidents, while those with lower credit scores statistically file more claims and this makes them riskier clients.
5. Apartment Rentals:
Most landlords check credit scores, and with a low credit score, you may have to put down a larger security deposit or pay a higher monthly rental rate.
Your best course of action? Remember, your credit score is extremely important. Never miss an opportunity to improve your score, make your payments on time, and keep your credit card balances below 33% of your total credit. If you’re just starting to work on your score, it will take time, but don’t give up! Keep working on your credit and you will see improvement.