Have you ever wondered how much bad credit is costing you? No need to wonder anymore. The editors of Credit.com have created a new online tool: the Lifetime Debt Cost Calculator – which tells you in dollars and cents.
To be precise, a 30-year-old with poor credit is likely to pay a quarter of a million dollars more in interest payments over their lifetime (assuming an $ 18,000 car loan, card debt. of credit of $ 5,000 and a mortgage of $ 400,000) than a similar person. with an impeccable score. If your credit is good, but not great, you will pay about $ 30,000 more over your lifetime than that person with excellent credit, according to the calculator.
“It’s easy to underestimate how much a credit score can cost you – or save – over a lifetime of borrowing,” said Gerri Detweiler, director of consumer education at Credit.com. “Most people understand that this affects their ability to get a car loan or rent an apartment, but they underestimate how much their credit affects the amount they pay in interest.”
The new calculator is completely interactive. Consumers can enter their own loan balances and slide the tipping bar to see how much their debt will cost them given their current credit score, or the score they think they can achieve with better behavior.
What could happen to your cost of debt if you file for bankruptcy? Slide the toggle bar to the left for the painful news of what you’ll pay if your credit goes down.
Calculations assume that at today’s rates, a consumer with perfect credit (740 or more) will only pay 3.75% for a mortgage, while a consumer with bad credit would pay 6.25%. (if he could get a loan).
The cost differences are much larger with unsecured debt, such as credit cards (rates vary between 9.25% and 24%) and debts secured by a depreciated asset, such as car loans (3% to 24%). 15.4%). And the cost of auto loans assumes that the average borrower will have 18 different cars in their lifetime, buying a new car every three or four years.
Lending rates change over time, so Credit.com will also periodically update the calculator’s interest rate assumptions, Detweiler said. But the tool is not intended to give consumers a penny estimate, she added. It’s really about explaining graphically the benefit of maintaining good credit.
The calculator itself also doesn’t provide tips on how to improve your score. But consumers who want to create a free Credit.com account can access their current score and get a personalized plan to improve it. (Other credit sites, including CreditKarma offer a similar free service.)
Note that any site that offers a credit report or credit score will ask for your social security number to retrieve your credit report. This report will also be used to make recommendations for improvements.