So what really is bad credit?

What qualifies as bad credit?

According to FICO, a score between 580 and 669 is fair, while a score between 300 and 579 is very poor. In this article, we’ll assume bad credit falls somewhere between 580 and 620, which is the lowest score you can have—while still getting approved for a mortgage.

To show how much a person with bad credit has to shoulder in comparison to a person with excellent credit, we’ll compare the interest payments of Bad Credit Joe to Excellent Credit Jack across 3 categories: credit card debt, mortgage costs, and car loans.

Using interest rate calculators and data from 2018, we determined how much more Bad Credit Joe will pay than Excellent Credit Jack in interest on major life purchases. In this scenario, we assumed Bad Credit Joe and Excellent Credit Jack were both male residents of New York City, between ages 22 and 75.

Bad Credit Joe v. Excellent Credit Jack

  1. Credit Card Debt

By age 25, the average American has accumulated $5,723 in credit card debt,

according to ValuePenguin. By age 35, the average debt increases to $8,325—and by age 45 to $9,096. By age 60, the average debt will drop slightly to $8,158, and by age 65, it will total $6,876.

Across all these lines of credit, Bad Credit Joe will be paying significantly more than Excellent Credit Jack due to a higher interest rate. Assuming Bad Credit Joe bears an interest rate of 25% on the average principal debt at each age, here’s how much he’ll pay in interest:

  • Age 22: principal debt of $5,723 at 25% over 151 months = $5,808
  • Age 35: principal debt of $8,325 at 25% over 169 months = $11,961
  • Age 45: principal debt of $9,096 at 25% over 175 months = $9,475 
  • Age 60: principal debt of $8,158 at 25% over 169 months = $11,843  
  • Age 65: principal debt of $6,876 at 25% over 160 months = $9,886 


Meanwhile, Excellent Credit Jack, with a credit score of 760, will have an interest rate

between 9% and 13%. On the same principal debt, he’ll pay the following in interest:  

  • Age 22: principal debt of $5,723 at 9% over 97 months = $1,419
  • Age 35: principal debt of $8,325 at 13% over 117 months = $2,934
  • Age 45: principal debt of $9,096 at 13% over 120 months = $3,254
  • Age 60: principal debt of $8,158 at 13% over 117 months = $2,906
  • Age 65: principal debt of $6,876 at 13% over 111 months = $2,430


Over his lifetime, Excellent Credit Jack will accumulate $12,943 in credit card

debt interest, while Bad Credit Joe will have to shoulder a burdensome $48,973. The

difference? A substantial $36,030. 

  1. Mortgage Costs

Most banks won’t offer conventional mortgages to people with a FICO score below 620—a result of the 2008 housing crisis when many home buyers defaulted on their subprime-rate mortgages. In many metropolitan areas, you need not only a high credit score to buy a home, but also significant dough. In New York City, for instance, the average apartment costs $2,020,000. If a home buyer put 20% down on their purchase, they would be left with a $1,616,000 loan.

If Bad Credit Joe just manages to qualify for a 30-year fixed mortgage with a 620 score, his interest rate would be 5.607%. That would make his monthly payments $9,284—and his total interest over the course of the mortgage a whopping $1,726,330. 

With his 760 credit score, Excellent Credit Jack can secure a 30-year fixed mortgage with 3.25% interest—on the same house. His monthly payments would only come to $7,033, while his total interest would be $915,856. Compared to Bad Credit Joe, Excellent Credit Jack would save $810,474—nearly $1 million on the same property. 

  1. Car Loans 

The average price of a new car in the U.S. is $33,560. Assuming most American adults buy a new car every five years, starting at age 45 and ending at age 60, they’ll have to cover four principal payments plus interest. 

If the principal loan on each new car is $26,848, and Bad Credit Joe has an interest rate of 15.18%, his interest payment on a 60-month loan would total $11,625. Multiply that by four to account for the next three car purchases, and Bad Credit Joe would end up paying $46,500 in interest.  

On the same car, with the same principal loan, Excellent Credit Jack would have an interest rate of just 0.90%, totaling $619 in interest payments per car. Over his lifetime, that would amount to $2,476 in interest. 

Once again, the difference between Bad Credit Joe’s and Excellent Credit Jack’s interest payments is massive: $44,024. And with interest on auto insurance payments, Bad Credit Joe’s total car expenses would increase even more.

Across all three categories, Bad Credit Joe will pay $890,528 more than Excellent Credit Jack in interest over his lifetime — roughly the price of a 40-foot yacht

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