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How Bad Credit Costs You

A poor credit rating can impact your finances, job search and more

by: Lynnette Khalfani-Cox, from: AARP, Updated January 2012

If the recession has taught us anything, it's that people of all ages are sorely lacking in basic financial literacy skills.

Now a new study, called Americans' Financial Capability, highlights how adults in the U.S. are especially ignorant about matters concerning credit and debt.

See also: Dispute mistakes on your credit report.

The National Bureau of Economic Research, which issued the study, found, among other things, that many people mishandle credit cards and debt to such a great extent that higher interest payments and fees routinely penalize them.

Case in point: Some of the 1,500 Americans polled by the Bureau didn't even know the interest rates they pay on their credit cards or mortgages. Others made late payments on credit accounts and suffered consequences such as late fees, penalty or "default" interest rates, and ruined credit records.

It's one thing to be a novice when it comes to sophisticated investing strategies, complex tax laws or arcane estate planning rules. Those areas frequently require detailed financial knowledge or specialty advice from an educated, experienced professional.

But mastering your credit doesn't require an MBA. On the contrary, it's an area that each of us can conquer with a bit of time, effort and study. If you're not willing to educate yourself about credit issues, that's like throwing money down the drain. After all, it's careless to be clueless about your credit rating, because bad credit can cost you money — lots of it.

debt challenge empty coin purse Bad Credit Costs More Money

— Photo by: PhotoAlto/Getty Images

A Million Dollar Credit Rating

In my book, Perfect Credit, I calculated that an individual with terrific credit would save or earn over his or her lifetime $1 million more than someone with bad credit.

How is this possible?

It all boils down to all the financial transactions you'll likely make over a lifetime, as well as the areas of your life where your credit rating plays a crucial role.

Let's start with the loans and credit you'll apply for.

Next: What excellent credit can do for you. >>