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The High Cost of Low Credit Scores

Credit Cards

Michael D Brown /

Over the past year, qualifying for a credit card has become easier for borrowers who don’t have pristine credit. But the rates they’ll get will be more than seven percentage points higher than borrowers with near perfect scores. Consumers with credit scores above 720 (based on the FICO score that ranges from 300 to 850) were charged 12.9% interest rates on average during the first quarter 2012, according to the latest study by, a credit-card comparison web site. Borrowers with FICO scores from 660 through 719 paid 17.1% on average and borrowers with scores from 620 through 659 paid 20.3% on average.

Borrowers with even lower scores who want a credit card might consider a so-called secured card, says Odysseas Papadimitriou, chief executive at To get a secured card, a borrower gives the credit-card issuer what is essentially a security deposit, usually at least $200, which establishes a line of credit. Their interest rates average 17.7%; in comparison, the few regular credit cards that exist for this group of borrowers charge 30% to 36% interest.

For credit card users, interest rates kick in if they carry a balance. In that case, card users with the highest credit scores will save. With a 12.9% rate, borrowers who have a $5,000 balance on a credit card and send $150 per month toward paying it down will pay about $1,235 in interest. With a 20.3% rate, they’ll pay $2,421 in interest.



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    • Credit scoreS play a very important role in our financial life, good credit score can make this life great, while bad one may bring us lots of inconveniences. That’s why it’s better to start to take care of credit history as only financial life starts. I know some people with a bad credit score and they wrongly assume that once their credit score is damaged then then they can’t do a thing to fix it. It’s very important to be responsible about making payments on loans, because credit score shows the lenders of cash advance how reliable you are. To my mind, it’s never too late to work on a credit score and take advantage of low interest rates and other benefits which are affordable for people with high credit score only.

    • So many Americans do not live within their means. In order to keep up with Joneses, many people bought houses they couldn’t afford so when the recession hit, they lost their homes to foreclosures and had to file bankruptcy. Post-bankruptcy, these people may start thriving if they live within their means.

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    • If you don’t have the cash to buy a car, you can’t afford it.

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