Things get even scarier when Mr. 550 tries to sign up for a traditional credit card. According to Bruce McClary of Clearpoint Credit Counseling Solutions, someone with a score in the low 500s can get approved for a credit card, but it’s going to carry an astronomical annual percentage rate, or APR.
“These cards can have an APR as high as 36%,” he says. Comparatively, those with golden credit like Ms. 750 can net a card that has an APR as low as 8.9%.
Let’s say that both participants in our hypothetical study maxed out a $5,000 credit line. Ms. 750, who, let’s face it, probably would never carry any outstanding balance, would already have $445 in interest to pay off after only one month.
Mr. 550, on the other hand, would have to shell out an additional $1,800 in interest after only one month. That’s a difference of $1,355, showing how quickly a bad credit score combined with only minimum payments can dig a major debt hole.
“The higher interest rate is going to cause your balance to go nowhere when you are making only the minimum payments,” McClary says. “You’re going to be enslaved to that debt for a long time.”
Does a bad credit score already have you in a financial hole? MainStreet has some suggestions on how you can start getting rid of that debt in 2011. http://www.mainstreet.com/article/moneyinvesting/credit/debt/10-tips-red...
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