Hundreds of Thousands of Dollars in High Interest Rates: How Much Does a Bad Credit Score Cost

Unfortunately, according to recent research, the difference between a very good and a bad credit rating can cost you nearly $ 400 in your lifetime. This effect is much less between high and normal credit ratings, but even so, paying interest can cost you tens of thousands of dollars. Edition Lifehacker has collected information about how much a credit rating can cost you throughout your life.

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Mortgage Interest Could Eat Your Decade Of Earnings

According to new research by financial technology company Self, the average American will pay about $ 130 over the course of their lifetime in interest fees. The distribution by FICO credit rating is as follows:

• under 620: $ 486
• 620-639: $ 158
• 640-659: $ 133
• 660-679: $ 114
• 680-699: $ 105
• 700-759: $ 98
• 760-850: $ 88

The interest attributable to the lowest credit ratings is 9,4 years of the average full-time worker's wage.

On the subject: Lack of credit history or bad credit rating: which is worse

Borrowers with credit ratings below 620 cannot qualify for regular loans, they are forced to take out subprime mortgages with much higher interest rates, which ultimately costs them much more. This is why it is so important that your credit rating is above 620 before you can apply for a mortgage.

Subprime Car Loan Interest Could Cost You Yearly Income

The study also looked at the cost of interest on car loans (based on the average lifetime prices of two used cars and four new cars and the corresponding interest rates). The distribution by FICO credit rating is as follows:

• 300-500: $ 87
• 501-600: $ 65
• 601-660: $ 39
• 661-780: $ 20
• 781-850: $ 14

Even with a decent credit score, a 100 point difference in your credit score will result in interest payments that are roughly equivalent to the annual wage paid from home while working part-time.

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Credit cards are harder to measure

Credit cards differ in that they are revolving credit loans and not installment loans like mortgages or car loans. For this reason, it is not easy to measure the lifetime average interest rate based on a borrower's credit rating. There are other reasons for this as well: borrowers usually need a credit rating above 670 to be eligible for a credit card, and many borrowers make timely payments before interest starts. The average credit card interest over the entire life is approximately $ 9624,24.

How to improve your credit score

Even borrowers with a very poor credit rating can slowly restore it over several years, but this requires good credit behavior. If your credit score is at the bottom, check out our material, which outlines your options for building a good credit history.

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Lack of credit history or bad credit rating: which is worse

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