A lot of people have missed at least one bill payment in their life. If this does not happen frequently then all it may cost is a late fee. If a person keeps on missing bill payments then it will cost lot more than a nominal fee. Not paying your bills on-time can affect the charges and fees you will pay on borrowed money thus costing you hundreds of thousands of dollars over your lifetime.
A typical household will have bills for services like electricity, gas, telephone, cable, internet, cell phone, credit cards, etc. Most service providers check the customer’s credit history before starting the service and keep the customer’s social security number on the file. If a customer does not pay the bill on time, the service provider reports the late payment to the credit reporting agencies such as Experian, Transunion, and Equifax. These agencies calculate a consumer’s credit score based on such data. Repeated late payments results in lowering of the score of the consumer.
Credit score determines the interest rate a consumer pays on loans like a car loan, home mortgage, credit card, etc. A typical low to mid-range home costs about $200,000. A traditional mortgage being 80% of home value is $160,000. Currently, the rate for 30 year mortgage is about 4% for people with excellent credit history. A lower credit score will cause a home buyer to pay 5% rate. Total interest paid at 4% on a $160,000 mortgage for 30 years is $114,991.21 and that at 5% is $149,209.25. So, even a 1% differential causes an additional payment of $34,218.04 in interest charges. Now, depending on credit score, the mortgage rate can go even higher resulting in even higher interest charges.
Similarly, a $15,000 car loan at 4% interest rate for 5 years cost about $1575 in interest payments. The same car loan at 6% APR for 5 years will cost about $2400 in interest charges. So over the period of 5 years, a car loan can cost more than $800 more in finance charges. Not only does the car cost more but the auto insurance also costs more. Insurance companies see a person with good credit history as a responsible driver and conversely, a person with lower score as a rough driver. This can cost a driver anywhere from $100-$300 annually.
We can safely deduce that maintaining a high credit score makes borrowing money much cheaper. Not paying bills on time will result in lower credit score and will cost a consumer much higher in long run. If you fall short on cash and cannot borrow money from traditional sources, it is recommended to get a payday loan from direct payday lenders and not brokers.