How Bad Credit Costs You

Think about the credit cards, mortgages, business loans, auto loans or student loans for which you've applied or might co-sign for in future years.

When you have bad credit, you'll have to pay an exorbitant amount of money in interest and finances charges — that is, if you get approved for a loan at all.

As of July 2011, for example, a person with a FICO credit score of 760 or higher who qualifies for a $300,000 mortgage can expect to get that loan at a rate of 4.3 percent. This borrower's monthly payment will be $1,485, according to data from Bankrate.com.

Now contrast that with someone who has shaky credit and a 620 FICO score. This individual will only qualify for a $300,000 mortgage at an interest rate of 5.9 percent. That translates into a $1,779 monthly payment. Each year, the second borrower will fork over an extra $3,528 to the bank. And over the life of a 30-year loan, the person with bad credit will shell out $106,126 more in interest alone.

Make the same calculations for all other credit obligations you might take on, and it's easy to see that bad credit can cost you dearly when you need to secure a loan or credit.

Excellent Credit Helps You Save or Earn Money

In other areas, too, having bad credit can cost you a fortune, namely because it can impact your ability to save and earn money.

Did you know your life and auto insurance rates are tied to your credit rating? It's true. People with excellent credit are offered lower insurance rates than those with poor credit. It may not seem fair, but that's how the system works.

On the job front as well, having a bad credit profile spells financial trouble.

For starters, employers are increasingly pulling people's credit reports before determining whom to hire and whom to promote. According to the Society for Human Resources Management, 60 percent of all U.S. employers now conduct credit checks as part of the employment screening process.

In a worst-case scenario, bad credit can prevent you from landing a lucrative job, or getting a promotion that you deserve.

Next: 4 things you can do to stay on top of your credit. >>