You Can Run But You Can’t Hide; The Importance of Good Credit
Everyone knows it’s important to have good credit, but not everyone knows just how important it is. Very few people have the cash to buy a car when they need it, or to purchase a house. When you have good credit it becomes easy to do these things, but when your credit is bad, it can be nearly impossible.
Money Makes the World go Around
No doubt you’ve heard the saying, money makes the world go around, however that’s not so true today. A more accurate saying today would be, credit makes the world go around. Not only does the average person need credit to purchase big ticket items like cars, and houses, but our government also relies on credit. The only way our country is able to function is by borrowing billions of dollars from countries like China and Japan. We borrow money by issuing debt instruments like Treasury Bonds, Notes, and Bills for sale to individual investors, corporations, and countries. Then we pay interest payments to those countries, corporations, and individuals for as long as they hold on to our debt. Just like you and I have to make payments on our auto loans and credit cards, our government has to make payments to different countries like China and Japan. If you are someone struggling with bad credit you know how hard it can make life when you need to buy something that you do not have the cash to purchase. If our government couldn’t borrow money anymore it would be at a standstill. So as the saying goes, it really is credit that makes the world go around, and not cash.
The Cost of Bad Credit
Not many people really understand the actual cost of bad credit. Let’s examine the cost of bad credit when it comes to the American dream of home ownership. If you were to borrow $400,000 to purchase a home and pay an interest rate of 4%, your monthly payment would be about $2,740.00. Ultimately you will end up paying over the life of the loan, $987,478, nearly a million dollars for a home that costs less than half a million. If you think that sounds bad, let’s look at the same scenario with someone who has less than stellar credit but is still able to get the loan. For a loan of $400,000 like before, but at the rate of 7% the monthly payments would jump to $3,494.00 a month or about $1,258,035 over the life of the loan. That means for having bad credit your monthly payments are about $1,200 more a month and about $271,000 more over the life of your loan. That’s enough difference to buy a second home in many states.
The Effects of Bad Credit
Your credit doesn’t just cost more when you buy something on credit. Now just about everyone wants to check your credit. If you are applying for a job your future employer will likely want to see your report. He/she will be looking for signs of irresponsibility or instability. For example, someone who moves frequently may get passed over for another person who has been at the same address for a number of years. A prospective landlord will also check your credit to make sure you have never been evicted. Many banks will check your credit before allowing you to even open a simple savings account. Whether it’s right or wrong, your credit affects just about every part of your life and having bad credit just makes everything just that much more difficult.
Repair your Credit
When it comes to repairing your credit, focus on the things that affect you the most. If an account is more than 5 years old it probably doesn’t affect your score anymore as it is inactive. If you make a payment on an inactive account it will become active again and effect your credit rating. Focus on recent credit card accounts or installment loans. Mortgage lenders do not care much about cell phone accounts or medical ones so they won’t hurt you as much if you are looking to purchase a house. If you do pay off a charged off credit card make sure the debtor is going to report it to the credit bureaus. Many times they will neglect to report the account paid in full and it will still hurt your score. While student loans affect your score, that’s another area where mortgage lenders will give you some slack. Whatever you choose to make payments on or pay off, follow up to make sure it’s being reported. Give it some time though as it typically takes 30-90 days for it to be reflected on your report.
Just remember, you can run, even go to a different country, and many times your report will still find you. Start repairing your credit today and it will save you thousands of dollars in the future.
Phillip Saunders is a professional blogger who provide financial advice and information and how to get fast cash. He writes for InstaLoan, where you can get an installment loans as well as many other loans with instant approval.
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Category: Debt
