The importance of maintaining good credit is something that many people talk about, but what is good credit really worth? Given today’s harsh financial environment, this is a question many people have to answer. Is it better for people to let their credit scores slide a bit in order to get out of a challenging financial situation, or should they spend extra time and effort to try to solve it?
The following numbers are by no means meant to be tailored to an individual’s specific situation; they are intended to give a broad picture of what an average person might be looking at.
The calculations were made for three different credit score sets: 760 and above, which would be considered excellent credit; 620 to 659, which would be considered average or below average credit; and 500 to 579, which would be considered poor credit. All numbers below are yearly payment totals.
|
Estimated Annual Costs Based on Credit Score |
|
Credit Score |
760+ |
620-659 |
500-579 |
|
Mortgage |
$ 21,120 |
$ 24,228 |
$ 32,772 |
|
2 Cars |
$ 18,504 |
$ 19,560 |
$ 20,736 |
|
Credit Cards |
$ 1,170 |
$ 1,710 |
$ 2,700 |
|
Total |
$ 40,794 |
$ 45,498 |
$ 56,208 |
*Mortgage and car data pulled from myfico.com and are based on National averages. Mortgage is based on 30 year fixed for a $300,000 home, and car payments are based on a 36 month loan for $25,000. Credit card numbers were based on average U.S. household balance of $9,000, and rates of 13%, 19%, and 30%.
Looking at the numbers, it is evident that managing credit should be a top priority. Remember, too, that these numbers only show yearly costs. If the additional costs were extrapolated over a five or 10 year period, the effects of bad credit would be that much worse.
Bankruptcies and foreclosures stay on an individual's credit report for seven to 10 years, and can turn out to be costly. But there are many other areas in which poor credit can be costly. In addition to the items accounted for above—mortgages, cars and credit cards—there are several other instances where credit may have a big impact upon an individual and their finances.
For example, many jobs in the financial industry will pull an applicant’s credit as part of the screening process. Insurers pull client credit and use that to determine policy pricing. Utility companies also pull credit. Each of these things, among others, could further increase the impact that good or bad credit has on an individual's financial situation.
Investors should evaluate their individual financial circumstances carefully, and consider all costs involved, when determining whether to take steps that will significantly damage their credit.
