Why Fix Your Credit? Understanding the Cost of Bad Credit

Sure, you understand the importance of paying your bills on time, and you may have a mountain of them, from everyday expenses to long-term debt. If the economy of the last few years has taught us anything, it’s that stability is the foundation of a solid financial stance. Even so, rising costs and plateauing salaries have gotten the best of some in recent months. If you are among the many people who have been hit by financial hardship, now is the time to assess your situation and determine how it affects your future. Cleaning up your credit could save you thousands in the long run.

How Does It Add Up?

The number one reason to clean up credit is future costs. Why spend more money if you don’t have to? Consider someone with a credit score that is below 620 that receives an interest rate of 12.5% for their $300,000 mortgage. This means their mortgage payments would be $3,097 which is approximately $1,114,920 over the life of the loan.

Now consider someone with a credit score of 735 with an interest rate of 6.1%, or $1,800 a month in mortgage payments. This equals out to approximately $653,760 over the life of the loan. Not only does a better credit score save you approximately $1,297 a month, but it will also save nearly $538,840 over the life of a 30 year fixed mortgage loan. As you can see, the drawbacks of a low credit score amount to much more than it can seem.

Test this out on a mortgage or car loan using the calculator available here.

I Want to Fix My Credit: Now What?

If you want to fix your credit score, start right now. Review the items that impact your credit score and look for ways to improve each one. Catalog your monthly bills and sign up for auto-pay if it’s available. Pay down your credit card balances. Pay off a loan all together if you’re able, allowing you to improve your debt to income ratio. Bottom line: be an active participant in the task of cleaning up your credit score and monitoring your progress. It’s never too late to repair past financial pitfalls and reclaim a solid stance.