How Costly Is Bad Credit? Many Don’t Know

Your credit score is a whole lot more than just a three-digit number – it’s essentially the lifeblood to financial opportunity. You likely are already well aware of how a good credit score can get your loan application approved fast, can get you low interest rates on auto and mortgage loans, and essentially save you money in the long term. But there’s also likely a lot that you don’t know about just how far-reaching your credit score is.

With that being said, do you really know just how costly bad credit is? You should. Here’s a closer look:

The Steep Costs of Poor Credit

If your credit isn’t in good standing, you should start enacting some credit repair strategies today. Here’s a look at some of the consequences of poor credit that you likely aren’t aware of:

  • Cell Phone: When you’re upgrading your cell phone or moving onto any sort of cellular plan, the cell provider is almost certain to conduct a credit check. If your score is poor, your options could be limited. After all, a credit score is essentially an indication of how reliable a consumer you are. If your credit report cites regular missed payments, what’s to say you’ll be making all of your cell payments?
  • Rent: Most everybody knows that you need a good credit score to get approved for a mortgage loan, but a poor credit score can also impact your renting options as well.
  • Utility Deposits: Many utility companies require some sort of an upfront deposit from consumers. If you have poor credit, you’re likely to have to put more money toward this deposit than someone with good credit would.
  • Car Insurance: Many car insurance companies are now considering your credit score when it comes to calculating your insurance premiums. While driver history and driving experience is an important consideration when it comes to car insurance premiums, many companies have found that an individual’s credit score can also help gauge reliability when it comes to driving as well.


As you can see, your credit score has a more far-reaching impact than just loan approval and interest rates, which is why you need to take the steps to repair your credit now if you’re among the 40 million Americans with a score of less than 600. Start by making on time payments on all of your bills, then work to manage your debt. Pay off high interest loans and credit cards first, and do your best to keep your credit utilization ratio at or below 30 percent. By committing to credit repair, it’s not unusual to see improvement within a matter of months.

Mortgages That Require a Zero Down Payment

One of the main prohibiting factors from more people being able to buy homes is the issue of the down payment. Yes, even if a consumer has a terrific credit score, a good job that would provide the income necessary to make monthly mortgage payments and the desire to be a homeowner, there’s that all-important issue of the down payment. Putting 20 percent down, as is the case with a conventional mortgage, isn’t feasible for many buyers – and even low down payment options, such as the 3.5 percent that’s the minimum requirement with FHA loans, can be a stretch for cash-strapped consumers.

The good news is that more and more lenders are taking note of these challenges that many consumers face, especially when trying to acquire property in expensive housing areas such as San Francisco, for instance. This post is designed to take a look at some of these zero-down and minimal down payment options that are now available.

Zero Down Payment Mortgages

Perhaps the most common zero-down mortgage is none other than the VA loan. However, the big difference between this type of home loan and others on this list is that in order to qualify for it, you have to either be a veteran or an active-duty service member. VA loan qualifiers will, however, have to pay a funding fee, usually of anywhere from 1.5 to 3.3 percent, which can be rolled into the loan itself. Another popular zero-down military loan is that of which is offered by Navy Federal. However, unlike VA loans, Navy Federal’s funding fee is lower at a constant 1.75 percent.

Here’s a look at some other zero-down home loans:

  • USDA Rural Development Mortgage: As the name implies, the zero-down loan is applicable to buyers that are purchasing qualified properties. But unlike what many may think, these areas that qualify aren’t all considered textbook “rural.” In lieu of a down payment, USDA Rural Development loans require an upfront 2 percent loan guarantee fee and a 0.5 percent annual fee that’s based on the current loan balance. Both can be rolled into the mortgage. One other thing to note about this loan, however, is that it is very popular and funds dedicated to it are known to be depleted well before the end of the year.
  • San Francisco Federal Credit Union POPPYLOAN: Announced in December of 2015, this geographically-specific offering from the San Francisco Federal Credit Union offers zero-down financing on home loans up to $2 million as a means of helping qualified buyers navigate the expensive Bay Area real estate market. In order the qualify for these POPPYLOANs, San Francisco-area buyers must be at least 18 year old and be purchasing a single-family home or condo, or a multi-family home that is intended to serve as their primary residence.
  • BBVA Compass: In February of 2015, BBVA Compass launched its HOME zero-down loan option. HOME, which stands for “home ownership made easier,” is offered only on properties that are in low- to medium-income areas, per Census designation. The HOME loans will also help buyers cover up to $4,500 of their closing costs.
  • NASA Federal Credit Union: NASA Federal Credit Union also offers a zero-down, fixed-rate mortgage that doesn’t require the purchase of private mortgage insurance. It’s available to qualified buyers on either a new home purchase or a refinance on mortgages up to $650,000.

Minimal Down Payment Mortgages

As we noted in the opening, homeownership isn’t so much about what your down payment is – but whether or not you can make the monthly mortgage payments over the course of the 15- or 30-year loan term. But for those that want to put some sort of amount down – even if it is minimal – there are low down payment options available. And several of these options are much less than the 3.5 percent minimum required with an FHA loan and the 3 percent down payments that many other lenders have begun to offer. Here’s a look:

  • Guaranteed Rate: As of July 2016, Guaranteed Rate offers loans with 1 percent down payments to nationwide consumers. The specific mortgage program is known as “Double Match,” and in order to qualify for the program, buyers need to have at least a 680 FICO score and be purchasing a home that is $417,000 or less.
  • Quicken Loans: In late 2015, Quicken Loans debuted a 1 percent down payment mortgage of its own for consumers buying homes (no refinances). To qualify, consumers must hold a credit score of at least 680 and have a debt-to-income ratio of 45 percent or less.
  • United Wholesale Mortgage: Around the same time that Guaranteed Rate introduced its Double Match 1 percent down mortgage, United Wholesale Mortgage came out with a low down payment option of its own. Dubbed an alternative to the 3 percent low down payment mortgages that are becoming increasingly popular, the buyer is only on the hook for a 1 percent down payment, while the lender will pay 2 percent, thereby giving buyers 3 percent equity come closing. To qualify, consumers must have at least a 700 FICO score and a debt-to-income ratio of no greater than 43 percent.

Right Credit Score – How do I get it?

Picture this scenario: You’re applying for a home loan. It’s a big life event, so obviously you want to be prepared. So you’ve checked your credit score on one of the many online sites that offer the service, were happy with what you came in at and believe you’ll be able to secure a home loan with a low interest rate. Then you connect with your lender, and, as is customary, they pull your credit score too. It comes in tens of points lower than it did when you checked online.

It can be frustrating to be in a situation such as the scenario above, only to discover that what you thought was going to be your credit score is different from what the lender came up with. And in a situation such as a home loan, what the lender discovered obviously trumps what any website came up with.

So how do you get the right credit score? Credit scores vary based on the type of loan you’re applying for (i.e. auto, home, etc.), but what the lender comes up with is always the accurate score for whatever type of loan you’re applying for.

Why the Credit Score Discrepancies?

Just why do credit scores pulled by lenders sometimes vary from the ones you receive via online websites? It’s simple – websites are typically using either their own scoring models, or more updated versions of the FICO score. That’s why it’s important to keep in mind when pulling your score online that these websites serve more of an educational purpose than anything else. These sites can give people an idea of what their credit scores are, and also help them identify areas where credit repair may be necessary to improve. But they’re certainly not scores that are set in stone – those come from the lender.

In noting this, experts advise individuals to just start early in the loan process. For example, if you’re anticipating applying for a loan a year or two down the line, pull your credit score from one of the online sites, see how it looks and analyze whether or not there are areas you can improve it to make yourself a more qualified buyer. Then, when it’s closer to applying for the loan, simply get pre-approved by the lender to get a precise idea of what your score is.


In conclusion, it’s worth noting that there’s certainly nothing wrong with using one of the online credit sites – but don’t take it to be 100 percent accurate, just use it for educational purposes. In the end, the only way to truly get the right credit score is by having your lender run your information before starting the loan process. That’s why it’s best to plan ahead and not be afraid to start the process early.