How much can bad credit really cost me?
Having bad credit can cost you more than you think. To better understand how much it could cost you, let us take a look at two real-world scenarios.
- Scenario One – Auto Loan for $20,000 (5 Year Term)
- Susan’s credit score of 720 allows her to acquire the loan at a 3.3% interest rate, which means her monthly payments will be approximately $362/mo.
- Tom’s credit score of 590 allows him to acquire the loan at a 13.6% interest rate, which means his monthly payments will be approximately $462/mo.
- Tom will end up paying approximately $6,000 more for the same car over a 5 year period. That’s $1,200 more per year!
* Rate and monthly repayment info provided by myfico.com on 9/21/15
- Scenario Two – Home Loan for $200,000 (30 Year Term)
- Susan’s credit score of 720 allows her to acquire the loan at a 3.78% interest rate, which means her monthly payments will be approximately $930/mo.
- Tom’s credit score of 620 allows him to acquire the loan at a 5.15% interest rate, which means his monthly payments will $1,093/mo.
- Tom will end up paying approximately $58,680 more for the same house over a 30 year period. That’s $1,956 more per year!
* Rate and monthly repayment info provided by myfico.com on 9/21/15
Can a divorce impact my credit score?
Generally speaking, a divorce is a life-changing event that is often associated with strains on a person’s emotions, physical & mental health, as well as their relationships with others. It can also put a strain on your credit report. In some cases, financial hardships that arise from a divorce like judgements, bankruptcies, foreclosures, and repossessions can be more difficult to overcome than the emotional pain.
When couples get divorced, a judge may review the debts they incurred as a partnership and divide them amongst each partner. This means the burden of maintaining the account and paying the outstanding balance on say a home loan, car loan, or credit card could fall to one person.
To make matters worse, even though a judge may have legally assigned a debt to one of the divorced individuals, the creditor may not respect that fact. As the creditor tries to collect money, they may try and hold both parties responsible. This means that if your ex-spouse is assigned a credit card debt and fails to make payments on time, you might see these late payments appear on your credit report as well.
If that wasn’t bad enough, some people are forced to file for bankruptcy due to the financial hardships caused by the divorce. When a creditor is notified of the bankruptcy filing, they may try to hound the other party to pay off the debt.
5 Surprising Things That Might Impact Your Credit Score
- City Fines and Parking Tickets – Many cities and municipalities can send unpaid fines to collection agencies. These collection accounts could be reported to the credit bureaus. As with all collection accounts, they will ultimately reflect poorly on your credit history and reduce your overall score.
- Back Taxes – Generally speaking, the IRS takes a hard line when dealing with unpaid taxes. Depending on the severity, the IRS could place a lien on your home or garnish your wages. Liens and wage garnishes negatively impact your credit score.
- Unsettled Accounts – Any time you change a service provider (e.g., utilities, cable, cell phone company) make sure you pay any left-over fees. Some companies may have an administrative fee for closing your account. These fees can make it on your credit report as unpaid accounts. These unsettled accounts reduce your credit score.
- Hard Inquiries – You might be aware that having too many hard inquiries to check your credit can have a negative impact on your score. Unfortunately, you may not be aware a company is submitting these hard inquires. We all expect our credit to be checked when applying for a loan or credit card. However, you may not be aware that certain activities like order cable service, renting a car, or requesting a credit limit increase can place hard inquiries on your report.
- Closed or Inactive Credit – Many people plan on closing out their credit cards or store charge cards once they’re done paying off the balance. At first thought this might seem like a good idea. However, before you make a decision, consider that closing out your credit card account might reflect as less available overall credit. Since the ratio between your debt owed and your total available credit is factored into your credit score, reducing your available credit could also reduce your score. To prevent this, you might wish to keep that credit card for small purchases which you’ll pay off in full when your bill is due.