6 Ways Bad Credit Can Cost You Money

Subprime mortgage rates

If your FICO credit score is 620 or lower (on a scale of 300 to 850 points), you're considered a subprime borrower. On a $300,000 home loan, you'll be saddled with a 5.20 percent mortgage rate and a monthly payment of $1,648, according to Fair Isaac Corp. But an individual with pristine credit — a prime borrower boasting a FICO score of 760 or better — will snag a low 3.61 percent mortgage rate and a monthly payment of only $1,366 on the same $300,000 mortgage. Translation: The person with bad credit pays nearly $300 a month more, and over the life of a 30-year home loan, he forks over an extra $101,373 in interest.

Higher auto insurance premiums

Tarnished credit can also translate into higher auto insurance premiums, since most insurers consider those with less-than-stellar credit to be riskier drivers. A 2013 study by InsuranceQuotes.com found that those with average credit pay 24 percent more for car insurance than drivers with excellent scores. People with poor credit pay rates that are 91 percent higher, nearly doubling their car insurance premiums. Where you live matters, though, since three states — California, Hawaii and Massachusetts — ban insurers from using credit scores in setting car insurance rates.

Default or penalty credit card interest rates

The national average credit card rate was 14.68 percent in August 2015, but credit card rates run between 22.9 and 24.9 percent for individuals with bad credit, according to LowCards.com. If you're 30 days late on a payment, you'll get further dinged with a so-called penalty or default rate, which Nolo.com says is commonly about 30 percent.

Job rejections and lost promotions

Nearly half of all employers look at credit reports as part of the hiring process, and 1 in 7 job applicants with poor credit have been advised they were not being hired due to their credit, according to research from Demos. Credit-based employment screening is controversial, though, with critics arguing that the practice is discriminatory against job hunters and current employees alike. That's why 11 states — California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington — now limit employers' use of credit information.

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Costly divorce

It may not shock you to learn that couples with credit scores averaging 450 or lower are more than twice as likely to divorce within four years as couples with scores averaging 750 or higher, Federal Reserve economists say. But here's a potential eye-opener for those who've married their financial opposite: Couples with very different credit ratings — one spouse with great credit and the other with poor credit — are also statistically more likely to split up. Fed researchers think couples who are better financial matches to begin with tend to do things that keep themselves on the same page financially. But couples who start out with wildly different credit scores tend to behave in less similar ways as the relationship goes on. The result can be a costly trip to divorce court.

Revoked business licenses

Bad credit as a result of defaulting on a government loan, such as a federal student loan, can financially harm your business, trade or career. If you need a license or certificate to operate in your field — say, you're a doctor, lawyer or teacher, or even a mortician, beautician or barber — your professional license or certificate can be revoked or suspended in at least 22 states if you're delinquent on federal student loans.

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