10 Shocking Things that Can Cost You 25% of Your Income Due To Poor or Mediocre Credit Scores
A low credit score is more than an inconvenience. Studies have shown that 45% of marriages end in divorce due to credit and financial issues. 47% of employers now use credit checks prior to employment. Gone are the days where the only issue associated with a low credit score is a few denials for credit and higher interest rates. These days the stakes are higher – and they’re only going up.
Three out of four middle class households are on the verge of being financially devastated
A full 75% of households making between $56,113 and $91,356 has less than three months expenses saved. In the event of a job loss, medical emergency, or other unforeseeable loss, these households would be financially devastated in a matter of months. This affects not just these families but the economy as a whole.
1.Poor credit can result in thousands of dollars in extra insurance premiums every year
95% of auto insurance companies and 85% of homeowner’s insurance companies take credit scores into consideration when figuring premiums – at least in states that allow it. When you compare the rate for someone with poor credit versus someone with excellent credit, the premium could almost double. In fact, rates increase 91% on average when comparing poor to excellent credit.
There are three states that don’t allow insurance companies to consider credit score when deciding premiums. For the rest of us, poor credit can result in paying thousands of dollars more in auto and homeowners insurance.
A recent study by the Consumer Federation of America had some shocking results. They took the profile of a woman living in a zip code where the median income was $30,000. She had no lapse in car insurance coverage, no history of accidents, license suspensions, or moving violations. She drove a Honda Civic 2000 EX and put about 10,000 miles a year on it. The study looked at the premiums in nine large U.S. cities. The results:
- State Farm
- $563 for excellent credit
- $755 for average credit
- $1,277 for poor credit
- $948 for excellent credit
- $1,078 for average credit
- $1,318 for poor credit
In the above scenario, a woman with poor credit who chose State Farm would pay $8,568 more per year than a woman with excellent credit.
2.You could be paying more than $65,000 in unnecessary mortgage fees
There’s no question that the housing and mortgage markets are stabilizing, but that doesn’t mean that every potential borrower can find a mortgage offer that meets their needs. In fact, many borrowers with good credit can’t get approved at all. If they do get approved, they often face a new array of fees and additional costs.
You may have heard that lending standards have lessened since the Great Recession, but this mostly applies to buyers with excellent credit scores in excess of 700. Borrowers who have minor credit issues, or who have down payments of less than 20%, still have limited access to the federally backed mortgages that were once considered mainstream.
Instead, buyers must turn to higher cost Federal Housing Administration (FHA) mortgages. These are designed specifically for low-income borrowers and/or borrowers with bad credit. Borrowers with fair-to-good credit – scores between 620 and 700 – typically can’t qualify for the low-cost mortgages that are based by government sponsored financing companies Freddie Mac and Fannie Mae. These types of loans either buy or guarantee more than 50% of the mortgages in the U.S. In the first three months of 2015 only 1 in 6 of the loans written to Fannie Mae standards went to middle-tier borrowers.
Theoretically, borrowers with credit scores all the way down to 620 are eligible for mortgages backed by Fannie and Freddie, but these companies impose huge extra charges to compensate for the greater risk. This means higher interest rates and penalties they call overlays.
When considering loans, Freddie and Fannie sort them into 8 credit tiers. The top one is reserved for borrowers with credit scores of at least 740. In May of 2014, the average credit score for those who financed through these companies was 757 and the average down payment was 19%.
Let’s consider a specific example: Let’s say you wanted to take out a fixed-rate 30-year mortgage for $200,000. If your credit score is on the top tier, you could expect an interest rate of 3.307%, which puts your monthly payments at around $877.
On the other hand, if your credit score ranges between 620-639 you’d be looking at an interest rate of 4.869%, which results in a monthly mortgage payment of $1,061. Even though credit scores in that range are considered good, you’d pay $184 more every month for your mortgage. Over the course of the loan that amount jumps to a staggering $66,343 more than someone with an excellent credit score.
3.Your credit may reduce your monthly income considerably
A full 47% of employers use credit checks when making hiring decisions. While it’s true that many of these companies only use credit checks when placing certain positions, one in eight does a credit check before every hire, regardless of the position. A poor credit score could lead to inflexibility in a job search and the necessity to take a position that’s well below your pay grade. Over a lifetime, this could result in a significant loss of income – all because of a lower than average credit score.
4.The best cell phone plans are out of your reach
The vast majority of cell phone companies will run a credit check each and every time you sign up for a new contract. This can lead to paying more or not getting a wireless plan at all. For example, T-Mobile is on record that half of Americans don’t have good enough credit to qualify for their best plan. AT&T requires good credit for customers to take advantage of their Next plan, and Verizon requires excellent credit for their Edge plan. Bad credit can also lead to high deposits or even the necessity of paying much more than you need to for a pre-paid phone plan.
5.Prepare to pay huge deposits if you’re renting a home or apartment
Moving can be prohibitively expensive for those with poor credit. Potential landlords will either deny your application outright, or will charge two or three times their typical deposit. Public utilities will almost never completely deny you services, but if you have poor credit they may insist on deposits. Together these inconveniences can cost you thousands of dollars and a lot of wasted time as you search for a landlord that’s willing to take on the risk of your low credit score.
6.Be prepared to pay up to $11,000 more for your car
Poor credit often means not qualifying for an auto loan, but those who do qualify can pay interest rates of up to 18%, which comes out to a total of $13,090.14 in interest payments on a 5-year, $25,000 loan. What do people with excellent credit pay? As little as 3.8% for a total of just $1,953.04 on the same loan. That’s a difference of more than $11,000 in interest.
7.If you have worse credit than your spouse then you have a higher likelihood of divorce
Studies have shown that credit scores are both very influential when choosing a mate and predictive of the longevity of a marriage. There is a strong correlation between how close two partner’s credit scores are and their likelihood of divorce. To put it bluntly: in situations where one couple has good credit and the other has poor credit, the chance of divorce is higher than a couple where both partners have good credit scores.
8.You may be one of the 20% of Americans with errors on their credit reports
Making payments on time isn’t enough if your credit report isn’t accurate. According to the FTC, about 40 million American consumers – that’s about 20% – had an error on their credit report. More than 5% of these errors are significant enough that the consumer in question could end up paying higher interest on a loan.
9.You probably know less about credit than you think you do
Most people think they have a pretty good handle on what credit scores are and what they mean for their lives. However, a recent study by the Consumer Federation of America (CFA) found that many Americans actually know very little about the way credit scores work.
- 40% of respondents did not know that credit card companies use credit scores when making decisions about credit availability and pricing.
- 42% did not know that mortgage lenders use credit scores when considering applications.
- 43% incorrectly believed that age is used in calculating credit scores.
- 40% erroneously believed that marital status is used when calculating credit scores.
- About 33% did not know that lenders are required to inform borrowers of the credit score they use to make a lending decision.
- About 40% of respondents had no idea that the credit scores of people who co-sign student loans are affected by that loan.
- More than 25% don’t know about the main ways to raise their credit scores.
When it comes to credit scores, information is power and until consumers are armed with accurate information they’re at a serious disadvantage.
10. Homeownership has dropped to its lowest level in 20 years
While buying a home isn’t the right financial move 100% of the time, it’s almost always a better financial investment than renting. Yet homeownership is at its lowest level in 20 years. Why? Because potential buyers either can’t get approved for a mortgage or can’t get the money together for a down payment. In the case of the former, credit improvement can make a huge difference, and in the case of the latter, paying too much in interest on their car loans, credit cards, and other fees associated with poor credit can mean the difference between meager savings and enough for that down payment.
Credit Solutions are Available: Here’s What You Can Do
Do these statistics scare you? Do you feel overwhelmed after learning all the ways credit can cost you thousands of dollars not just over the course of your life, but in the next year? Then you’ll be glad to know that there are solutions available. While the right path to credit recovery varies on a case-by-case basis, there are some facts that hold true for virtually every situation.
It all begins with checking your credit report
Everyone in the United States is eligible to check all three credit reports for free – every single year. Even those with good credit who believe their report is positive should check it for errors. When you’re trying to improve your credit, the first step is to take a look at the damage. Many consumers are surprised to see their credit report for the first time and discover that it’s not as bad as they imagined.
Many debts can be removed without paying a cent
If you have debts in collections you may have options other than simply paying them. In many cases, debts are sold by your original creditor to a third party. When they’re sold, the third party often gets limited information on the original debt, and that information may not be enough for the collection company to legally come after you for said debt. As a result, sometimes having items removed from your credit report is as simple as disputing them.
Work with a credit repair company
You can do the research yourself, you can ask friends and family, and you can attempt credit repair on your own behalf, but wouldn’t it make more sense to turn to the experts? Credit repair companies exist for one purpose: to get results for their clients. They have the most up-to-date information, they have the experience to know what the right next move is, and they can get you through the process with lightning-fast results.
What to Look for in a Credit Repair Company
You do want to work with a credit repair company but you don’t want to simply choose the first company you come across. There are several factors you must insist on when you choose the right company for you.
- Specific performance metrics for success: The company you choose should be able to provide more than generic promises. They should give you concrete numbers and stats on how they’ve improved their client’s credit.
- A high deletion rate: Some companies claim that a deletion rate of “more than half” is enough. It isn’t. Look for a company with a 75% or higher deletion rate.
- Refund policy: If a company doesn’t provide the services you paid for then you should get your money back. It’s as simple as that. Too often credit repair companies claim that this is a business where results can’t be guaranteed. This is nonsense and you shouldn’t fall for it.
- Customized dispute process: Anyone can download a generic dispute letter off the internet. These are simply not as successful as customized letters. Your credit repair company should provide a truly customized experience from start to finish.
- Lifetime warranty: It’s possible for some credit repairs to be temporary. The company you work with should make it right if that happens. Ask about their lifetime warranty. If they don’t have one, then they don’t have your business.
- Convenience: You don’t want to have to call for a consultation every time you need information. It’s the age of the Internet and you should be able to track your results online 24 hours a day, 7 days a week.
Expect the Best and Be Impressed with Leaf Credit Solutions
When you choose Leaf Credit Solutions you’ll get everything listed above and more. Consider our stats:
- Our average client’s score improves 80 – 127 points within 60 days of enrollment.
- Our deletion rate is 76%.
The services provided by our company are not the cheapest on the market but they do offer the highest value and return on investment. When you enroll in our proven credit score services you’ll get:
- A money back guarantee.
- A customized dispute process not used by anyone else in the industry.
- A lifetime warranty on your results.
- Access to your results 24/7.
- Discounts for couples who both enroll in our services.
We’ve dealt with thousands of cases similar to yours and are uniquely positioned to help you say goodbye to wasting 25% of your income on higher interest rates, renting rather than owning, and paying on old debts that are no longer collectible.