How Much Will a Bad Credit Score Really Cost You?


More than half of all Americans have subprime credit. Unfortunately, this means that most people don’t have access to the best interest rates and loan terms available when they apply for a credit card or loan.

cost of bad credit

Having bad credit can have a significant impact on your life, regardless of whether you use credit every day or pay cash for most of your purchases.

Bad credit doesn’t affect just your loans. It branches out to many other areas that might surprise you. Find out exactly how much bad credit can cost you and what you can do to turn things around.


Buying a house is hands down one of the most significant purchases you’ll ever make in your life. What else would you spend a potential six figures on?

Due to this large price tag, even a small fraction of an interest point can add up to thousands of dollars over the course of your mortgage. Furthermore, your credit score also impacts how much of a down payment you’re required to make. Let’s break it down with an example.

FHA Loan Example

Sarah purchases a home priced at $175,000. She takes out an FHA loan, and because her credit score is 745, she qualifies for a low interest rate of 3.45%. Not only that, she only has to make a 3.5% down payment.

That payment comes to $6,125, bringing her loan amount down to $168,875. Then, using a mortgage calculator, we find that Sarah’s monthly principal and interest payment comes to $754. So, she’ll spend a total of $271,303 over the life of the 30-year mortgage.

Now let’s look at Brad. He buys a similar house for the same price as Sarah and also takes out an FHA loan. However, he has a low credit score of only 575.

He still manages to qualify for the loan. However, he must pay 10% of the home price as a down payment, which amounts to $17,500. That’s well over $10,000 more than Sarah is required to pay. Plus, his interest rate jumps up to 5.25%.

Even with the higher down payment, Brad’s monthly payment is still $870, and he will pay a total of $313,099 on his 30-year mortgage. Getting the same price home with the same type of loan ends up costing Brad over $53,000 more than Sarah, simply because he had bad credit.

That may seem like a lot, but Brad is lucky to get a mortgage at all in this hypothetical situation. Most conventional lenders cut off their approvals around 620, and FHA lenders start to weed out applicants with a credit score of 580 or less.

Renting an Apartment

Bad credit also impacts whether you can rent an apartment. More and more landlords now require a credit check as part of the screening process for tenants. If you live in a competitive area, having a bad credit score could become a roadblock to finding a house or apartment.

Loans and Credit Cards

Bad credit can also cost you money when it comes time to take out a loan or apply for a credit card. Maybe you need a personal loan to cover emergency expenses. Or perhaps a car loan when you need a new set of wheels. You’ve already seen what the difference of a point or two in interest can do to your monthly payments.

If you have a really poor credit score, you might not qualify for a personal loan or credit card at all. If you don’t have access to credit but need money for an emergency, your options become dangerously limited.

Payday Loans & Title Loans

You might be tempted to take out a payday loan or title loan. However, bother come with extraordinarily high interest rates and fees. You also have possibility of losing your car or other property if you can’t repay the loan on time.

Student Loans

Student loans are also a major burden for many people today. In fact, over 40% of student loan borrowers aren’t making payments at all, and over 16% are already in default.

Regularly missing payments and going into default make your credit scores even worse. But if you already have bad credit and seek a solution to lower your monthly payments, your options are also limited.

You probably won’t qualify for a lower rate, and might not be able to refinance at all. It sounds like a vicious cycle, but the best thing you can do for yourself is work to have a good credit score before it’s too late.


At some point in your life, you’re going to need insurance. Whether it’s home, auto, renters, or life insurance, all require paying monthly premiums to protect our valuable possessions. And unfortunately, just how much you pay each month depends partly on how strong your credit score is.

Insurance companies assume that if you’re irresponsible with money, you may also be irresponsible while driving or taking care of your home or health.

95% of car insurance companies and 85% of home insurance companies run credit checks when determining premiums. Even if you don’t intend to use credit specifically, your credit score still follows you in other ways.

Other Poor Credit Roadblocks

In addition to affecting your access to credit and insurance premiums, having bad credit can cost you in other big ways.

Bank Accounts

Many banks won’t let you get a bank account with bad credit, particularly if you have a history of frequent overdrafts or bounced checks.

This information is documented in ChexSystems, and while some banks do offer “second chance” accounts, you’ll likely end up with limited options, higher fees, and high deposit minimums.


Your employment options may also become limited with a bad credit score because many employers now check your credit as part of the job application. This is especially true if the position requires you to handle money or keep a company credit card.

You might not be able to put an exact price tag on the cost of bad credit here, but there’s no doubt your income could suffer if you can’t move up in the ranks with greater responsibilities.

See also: 5 Sneaky Ways Credit Scores Can Impact Your Life

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 score. 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 DecisionCredit Score Drop with a 680 Starting ScoreCredit Score Drop with a 780 Starting Score
Maxed-out credit card10 – 30 points25 – 45 points
30-day late payment60 – 80 points90 – 110 points
Debt settlement45-65 points105-125 points
Foreclosure85 – 105 points140 – 165 points
Bankruptcy130 – 150 points220 – 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 scores? The answer to that question depends on what exactly is on your credit report.

Grab Copies of Your Credit Reports

It’s easy to find out. First, request a copy of your three credit reports from Experian, Equifax, and TransUnion. It’s free 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

Take a look and see what exactly is there and make sure all the information is accurate. If you have one or two negative items, you might be able to get them removed on your own. You can use several methods depending on the types of items on your credit report.

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 current credit history.

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.

Final Thoughts

Hopefully, it’s now apparent that a poor credit score affects your finances, housing, insurance, and even your career. These tangible effects don’t even account for the emotional stress you’re likely to endure when you’re dealing with these issues.

The cost of bad credit is real, and it’s substantial. But most importantly, it’s avoidable. So commit to getting your finances straightened out today so you don’t have to worry about bad credit tomorrow.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.