It’s a well-known fact that you will have to pay more for some expenses if you have a low credit score. This article will help you to get prepared for these extra expenses as it will tell you the five crucial things that will definitely cost more due to poor credit.
Whether you need a mortgage loan, car insurance or you just want to rent an apartment with low credit, be ready to pay more. The thing is lenders and those who provide financial services literally rely on the personal credit scores to define if a customer can actually pay bills on time. So, if you are one of those who skip paying bills or delay your payments, be ready to become a risky borrower for any lender you apply to. Generally, lenders determine a FICO credit score of 640 and lower as a poor one, thus you will have to pay more for personal loans, credit cards and other financial options. In some cases, you may even not qualify for them, so keeping your credit score on the level of 740 or higher (it’s the excellent one) will definitely make you a winner.
Still, if your credit is far from perfect, you should know these five options that will cost you more:
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Actually, it’s rather difficult to get eligible for a mortgage with poor credit score. Although, if you have managed to qualify for a loan, expect to pay higher interest rates. As a rule, applicants with a high FICO credit score (that is 740 and higher) might get eligible for a 30-year fixed-rate mortgage with an interest of 4%, while applicants with a low credit (that is 640) are likely to be charged an interest of 4.38% for this very loan. That comes out to tens of thousands of dollars in interest if the applicant with lower credit pays out the loan in full over thirty years.
2. Credit Card.
Credit card is one of the financial options that are already coming with high interest rates. Although, if your credit score is not good enough, be ready to pay more. Experts say that even a slight difference in the rate of interest on your credit card debt may have a sufficient effect on your budget.
3. Car Loan.
Car lenders, just as all personal loan lenders, will definitely charge a higher interest rate if you have a low FICO score. The car manufacturers are often advertising low interest rates on auto loans, but keep in mind that works only for customers with the best scores. So, the better the FICO score, the better a borrower looks to lenders.
You might be really surprised, but insurers consider that drivers with excellent credit scores are likely to file fewer claims and get into fewer accidents. That’s why many insurers provide higher rates on auto insurance for those with low credit. Besides, homeowners insurers may also cost more because people with low score are expected to file more claims and this makes them riskier clients.
Landlords also check credit scores, thus you may be considered as a risky tenant if your FICO score is not high enough. Thus, you can be made to pay a larger security deposit or charged a higher monthly rate.
Well, keep in mind that your credit score is extremely important, so don’t miss a chance to improve it as much as possible. Luckily, it is not so hard. Just do your best to make payments on time and repay your credit card as well as other debts. Don’t think that the response will be immediate. It may take from several months to a year or even longer. But your credit will be definitely improved.