Bad credit doesn’t just make borrowing harder—it makes life more expensive. From paying thousands more in interest on a mortgage to getting charged higher car insurance premiums, the cost of a low credit score adds up fast.
More than half of Americans have subprime credit, which means millions of people are paying more than they should for everyday financial products. And the impact goes beyond money. Bad credit can limit your housing options, restrict job opportunities, and even create ongoing stress that affects your well-being.
This guide breaks down the real cost of having bad credit, with examples that show just how much it can drain your wallet. You’ll also see what steps you can take to repair your credit and put yourself back in control.
Key Takeaways
- Bad credit results in higher interest rates on loans and credit cards, leading to significantly increased costs over time.
- Poor credit can also raise insurance premiums and complicate renting an apartment or securing a mortgage.
- Bad credit impacts employment opportunities, bank account access, and even starting a business, alongside emotional and psychological stress.
How Credit Scores Impact Your Finances
Your credit score is a three-digit number derived from your credit history. It tells lenders how risky it is to lend you money or extend credit to you. FICO scores range from 300 to 850, and where your score lies in this spectrum can dramatically affect your financial life.
FICO scores are generally categorized as excellent, good, fair, poor, or bad. Having a low credit score or bad credit can limit your financial opportunities and make borrowing money more expensive. Regularly monitoring your FICO score is a good practice to ensure you maintain accurate information and understand your current credit standing.
Direct Financial Costs of a Bad Credit Score
Having a bad credit score can have substantial financial consequences. Here’s a breakdown of how it can take a toll on your financial health:
Higher Loan and Credit Card Interest Rates
Bad credit may not entirely disqualify you from loans or credit cards, but it does come at a steep price. Individuals with lower credit scores are often subjected to much higher interest rates than those with better scores. To put it in perspective, the interest rate on a personal loan or car loan could be two or even three times higher for someone with bad credit.
These inflated rates can accumulate substantially over time, particularly with larger loans like mortgages. Over the loan term, the total interest paid could be thousands more with bad credit scores.
Payday and Title Loans Cost More With Bad Credit
Payday and title loans may seem tempting but come with their own set of dangers. They are characterized by extraordinarily high interest rates and fees. Additionally, if you fail to repay the loan on time, you risk losing your car or other property.
Student Loans Are Harder to Manage With Bad Credit
Student loans are already a heavy financial load, and bad credit only makes them harder to handle. More than 40% of borrowers aren’t making payments, and about 16% are already in default. Each missed payment hurts your credit score, making it even more difficult to get back on track.
If your credit is low, options like refinancing or securing a lower interest rate may not be available. That leaves you stuck with higher payments and fewer ways to ease the strain. The best path forward is to focus on rebuilding your credit so you can eventually qualify for better repayment terms.
Bad Credit Increases Insurance Premiums
Your credit score doesn’t just impact loans but also your insurance premiums. Many insurance providers use credit-based insurance scores to determine premiums. As a result, those with poor credit often face higher premiums, especially in areas like auto and home insurance.
Bad Credit Makes Renting More Difficult
Your credit score can also impact your housing options. An increasing number of landlords now incorporate credit checks in their tenant screening process. In a competitive housing market, a bad credit score can become a significant hindrance in renting an apartment.
Bad Credit Raises the Cost of a Mortgage
Getting approved for a mortgage with bad credit is tough — and even if you qualify, the costs are much higher. Lenders typically charge higher interest rates and may require larger down payments from borrowers with low credit scores. Over the life of a 30-year loan, that can add up to tens of thousands of dollars.
Take this FHA loan example: Sarah, with a 745 credit score, buys a $175,000 home at a 3.45% interest rate and only needs a 3.5% down payment. Her total cost over 30 years comes to about $271,303. Brad, with a 575 score, must put down 10% and gets a 5.25% rate. His lifetime cost balloons to $313,099 — more than $53,000 extra for the same house.
Bad credit doesn’t just make homeownership harder — it makes it far more expensive. Improving your credit score before applying for a mortgage can save you thousands and make qualifying much easier.
Indirect Costs of Bad Credit
In addition to the direct financial implications, bad credit can also inflict several indirect costs:
Bad Credit Can Affect Job Opportunities
Bad credit doesn’t just impact your finances—it can also affect your career. Some employers run credit checks during the hiring process, especially for jobs that involve handling money or company credit cards. A poor credit history may raise concerns about reliability and limit your chances of getting hired.
While it’s difficult to put an exact dollar figure on lost opportunities, the impact can be real. If bad credit keeps you from landing a better-paying position or advancing in your career, the long-term cost to your income could be significant.
See also: 5 Sneaky Ways Credit Scores Can Impact Your Life
Bad Credit Limits Access to Bank Accounts
Maintaining a bank account can become challenging with a bad credit score. Banks are often reluctant to provide accounts to individuals with poor credit, especially those with a history of recurrent overdrafts or bounced checks.
This information is recorded in ChexSystems, and while some banks offer “second chance” accounts, these typically come with restricted options, increased fees, and high minimum deposit requirements.
Bad Credit Makes Starting a Business Harder
Launching a business often requires outside funding, but a low credit score can make securing that capital difficult. Lenders typically look at your personal credit history when evaluating business loan applications, and a poor score signals higher risk.
This can mean higher interest rates, stricter terms, or outright denial of funding. Without access to affordable credit, covering startup costs or expanding operations becomes much harder. Building your personal credit first can improve your chances of getting approved and set your business on a stronger foundation.
Stress and Emotional Costs of Bad Credit
The effects of bad credit go beyond money. The strain of managing debt, keeping up with high minimum payments, and facing limited credit access can take a toll on your mental health. Over time, the constant pressure creates stress that seeps into personal relationships and overall well-being.
While harder to measure than financial costs, the emotional impact is very real. Reducing debt and improving your credit score not only saves money but can also ease stress and give you greater peace of mind.
Ready to Repair Your Credit?
Learn how to get help disputing errors on your credit report that could be hurting your credit score.
How Bad Decisions Affect Your Credit
Now you know how bad credit impacts your life, from financial opportunities to potential earning power. It’s time to find out how much a bad financial decision can affect your credit. Hopefully, the next time you consider one of these options, you’ll look for an alternative so that your credit score doesn’t take a hit.
| Financial Decision | Credit Score Drop with a 680 Starting Score | Credit Score Drop with a 780 Starting Score |
| Maxed-out credit card | 10–30 points | 25–45 points |
| 30-day late payment | 60–80 points | 90–110 points |
| Debt settlement | 45–65 points | 105–125 points |
| Foreclosure | 85–105 points | 140–165 points |
| Bankruptcy | 130–150 points | 220–240 points |
How to Clean Up Your Credit
So, what’s the best way you can clean up your credit history and raise your credit score? The answer to that question depends on what exactly is on your credit report.
Grab Copies of Your Credit Reports
First, request a copy of your three credit reports from Experian, Equifax, and TransUnion. You are entitled to a free credit report every 12 months, and it’s definitely a service worth taking advantage of. If you fill out your request online, you can download your reports right then.
Check Your Reports for Inaccuracies
Once you have your reports, thoroughly review all the information. This includes your personal information, account status, credit limits, loan amounts, payment histories, and any negative items such as late payments, collections, or bankruptcies.
If your report contains any negative items, you may be able to remove them on your own. The method to do this depends on the nature of the negative items:
- Incorrect Information: If you spot errors or inaccuracies on your credit report, file a dispute with the relevant credit bureau. The credit bureaus are legally obliged to investigate and correct any inaccuracies, usually within 30 days.
- Outdated Negative Information: Negative items should automatically be removed from your credit report after a certain period, typically seven years. If such items linger beyond this period, you can request their removal.
- Negotiate with Creditors: If the negative items are accurate but due to circumstances such as financial hardship, you can negotiate with your creditors. They may agree to remove the negative item in exchange for payment, a practice known as “pay for delete.”
Hire a Credit Repair Service
If your credit needs a lot of work, you might also want to consider hiring a credit repair service. They understand how the law works. They also ensure that no stone is left unturned when it comes to fixing your credit.
When you work with an experienced company, you’ll receive a personalized action plan tailored specifically to your credit situation.
Most major credit repair companies have teams of experts and lawyers who understand the Fair Credit Reporting Act and other consumer protection laws. Follow this link to read the review of our top-ranked company.
How to Improve Your Credit Score
Improving your credit score is not an overnight process, but with consistent effort, you can gradually increase your score. Here’s how:
Focus on Payment History
Your payment history is the most significant factor affecting your credit. Making on-time payments is key to improving your credit and moving from bad credit to good credit.
Reduce Your Debt
The amount of debt you owe, also known as your credit utilization ratio, significantly impacts your credit. Paying down your debt, especially on credit cards, can help improve your credit score.
Limit New Credit Applications
Every time you apply for a new credit product, a hard inquiry is made on your credit report, which can lower your credit score. Limiting new credit inquiries can prevent your score from dropping further.
Increase Credit Age
The length of your credit history also plays a role in building a positive credit history. Keeping your oldest credit accounts open, even if they have a zero balance, can increase your credit age and potentially boost your score.
Maintain a Diverse Credit Mix
Having a mix of different types of credit—such as credit cards, auto loans, and home loans—can positively influence your credit. Lenders like to see that you can handle different types of credit responsibly.
Use Secured Credit Cards
Secured credit cards give you a simple way to rebuild your credit. They work like regular credit cards, but you put down a refundable deposit that sets your credit limit. For example, a $300 deposit usually gives you a $300 limit.
Use the card for small purchases, pay the balance in full each month, and those on-time payments get reported to the credit bureaus. Over time, this builds a positive payment history and can raise your credit score. Many issuers will even review your account after several months and upgrade you to an unsecured card.
Take Out Credit Builder Loans
Credit builder loans are another tool for improving your credit. Instead of getting the money upfront, the lender holds the loan amount in a savings account while you make monthly payments. Each payment is reported to the credit bureaus, helping you build a record of on-time payments.
When the loan is paid off, the money is released to you, often with interest. This way, you improve your credit score while also ending up with a small savings cushion.
Final Thoughts
Bad credit makes life more expensive. Higher loan payments, steeper insurance premiums, and fewer financial options all add up over time. The good news is that your credit score isn’t fixed. Every payment you make and every account you manage shapes it.
Focus on the basics: pay on time, pay down debt, avoid unnecessary applications, and keep your oldest accounts open. Over time, these habits strengthen your credit history and open the door to better rates, easier approvals, and more opportunities.
Improving your credit takes consistency, but the payoff is real. A stronger credit score can save you thousands of dollars and reduce financial stress, making it one of the smartest investments you can make in yourself.
