I’ve never met anyone who woke up one day and said, “I think I’ll get in more debt than I can handle and destroy my credit!” No one plans to end up with a bad credit rating, but the reality is that in this economy, it is happening more and more.
If you are in this situation, you may feel like staying away from credit forever. Even if you don’t want to use credit in the future, that doesn’t mean you should ignore your credit. Having a bad credit rating involves far more than just not being able to get a new gold card. Let’s take a look at the true costs of a bad credit rating.
What is Your Bad Credit Rating Costing You?
Beyond just costing you the opportunity to buy a new home or car, having a bad credit rating can actually prevent you from getting a job. Most employers want to see that you handle your finances properly before making a job offer. A growing trend is to also pull credit before promotion. Losing out on a job or a promotion obviously prevents you from building wealth in the long run.
Financially speaking, having a bad credit rating is devastating. Loans for people with bad credit ratings obviously carry a much higher interest rate than loans for people with great credit. The same goes for credit cards for bad credit rating. Paying higher may not seem like such a big deal, but it erodes your ability to build wealth over time.
As an example, say you get a $25,000 car loan for 12% while your neighbor gets a car loan for 7%. Every year you are paying $3,000 in interest while they are only paying $1750. This means that they have the ability to save $1,250 more a year than you do. These differences really ad up over time! And, obviously, paying a higher interest rate on a home loan is much more significant – though it is less of an issue now because bad credit rating home loans really don’t exist outside of private lending any more.
The worst part about loans for bad credit rating is that you are in a no win situation. You probably need to get some new credit in order to improve your credit score over time. The best advice is to develop a comprehensive credit restoration strategy and stick with it! Pretty soon, your bad credit rating can be a thing of the past.
