Two friends go about their lives, taking out student loans, buying cars and homes, and taking on a bit of credit card debt. While their expenses are identical, their credit scores—and corresponding monthly payments and interest charges—are not. Over a lifetime, the person with credit rated “fair to poor” can expect to pay over $200,000 more than the person with good credit.
Over at MSN Money, Liz Pulliam Weston does the math, comparing the lifetime’s major expenses for two friends named Emily and Karen.
If you’ve got bad credit, the extra interest charged on a mortgage is the real killer. Both women buy homes at age 30 for $300,000, and then upgrade to $400,000 homes at age 40. In the long run, Karen—the one with bad credit—winds up paying about $100,000 more than Emily. And they’re both buying basically the same house. When you tally up other costs related to bad credit (extra interest paid for student loans, credit cards, and such), it can easily add up to more than $200,000 over a few decades.
Bad Credit: Not So Bad After All?