1. Mortgage loansIt's not easy to qualify for a mortgage loan if you have a low credit score. But if you do qualify, expect to be charged higher interest rates. That can cost you tens of thousands of dollars. Tim Lucas, editor of MyMortgageInsider.com, puts it like this: Borrowers with a FICO credit score of 740 today could qualify for a 30-year fixed-rate mortgage loan with an interest rate of 4 percent. A borrower with a FICO score of 640 would be charged an interest rate of 4.375 percent for the same loan. On a 30-year loan of $250,000, the borrower with lower credit would pay $55 more every month. That comes out to almost $20,000 if that borrower pays off the mortgage in full over 30 years.
And for borrowers with even lower credit scores? They'd be charged even higher interest rates that will cost them even more money as they pay back their mortgage loans."The lifetime cost of having a bad credit score is staggering when it comes to a mortgage," Lucas says.
2. Credit cardsCredit cards already come with high interest rates. But if your credit score is low, you can expect to pay even higher rates. Gary Herman, president of ConsolidatedCredit.org, says that even a few points difference in the interest rate on credit card debt can have a significant impact on your budget.
Say you have credit card debt of $5,000 at 18 percent interest. If you only make the minimum required payment each month to pay off that debt, you'll pay more than $3,000 extra in interest than if you only made the minimum payment each month and your interest rate was 13 percent.
"That's a much larger burden, which is why high-interest credit card debt can be so difficult to manage and pay off," Herman says.
3. Auto loansAuto loans are smaller than mortgage loans, of course. But they can still add up to large monthly payments, especially if your credit scores are low. Auto lenders, like all lenders, charge higher interest rates to borrowers with low scores. The difference between an interest rate of 3.5 percent on a $15,000 five-year car loan and one of 5 percent on the same loan can add up. "The cars for the new model year are coming out now, and auto manufacturers are advertising low interest rates," says Ken Chaplin, senior vice president of the consumer division with national credit bureau TransUnion. "But those rates are only for those people with the best credit scores. The better the score, the better you look to lenders, the more likely it is that you'll be able to enjoy those low advertised rates."
4. InsuranceIt might surprise you, but many insurers charge consumers with low credit scores higher rates for auto insurance. Insurers say that drivers with high credit scores tend to get into fewer accidents and file fewer claims. That's why those with low credit scores are charged more. It's important to note, though, that insurers in Hawaii, California and Massachusetts are not allowed to use credit scoring when setting policy rates for auto insurance.
You might also pay more for homeowners insurance if your credit is score. Again, insurers say that homeowners with low credit scores are more likely to file claims, making them riskier customers.