TULSA, Okla. — About a quarter of all Americans have a subprime credit score and another quarter have no credit score at all, costing them thousands of dollars annually on essential financial products.
A new Bankrate study shows subprime borrowers pay about $3,400 more for financial necessities like insurance and loans for homes and cars.
"Which sadly may be $3,400 that people don't have. It represents about 4% of the median household income, and it just shows that the penalty for having bad credit can be significant," saidfinancial analyst, Ted Rossman.
The study defined a subprime credit score as 620 and compared it to the borrowing rates available to people with a credit score of 700.
"It's most significant for mortgages just because that's a big ticket item that lasts for a long time. Even a 0.25 point difference on a mortgage rate could potentially be worth tens of thousands of dollars over the life of the loan," Rossman said.
The impact extends beyond just home loans to other common financial products.
"If you're getting a 15% auto loan instead of an 8% rate, I mean that could be $100 a month right there. Insurance companies will look at your credit score when setting rates and assessing risk," Rossman said. The result could mean paying higher rates for insurance products if your credit score is considered subprime.
The study highlights the value of improving your credit score — something that doesn't happen overnight but can start with simple moves like paying bills on time and keeping debts such as credit card balances low or paid off each month.
"I would say though that in 6 months you can probably meaningfully improve your score, maybe even sooner, depending on what's dragging it down. Negative information stays on your credit report for up to 7 years, but the good news is that the impact is most pronounced in the first year or two," Rossman said.
So, it's important to keep up with current payments to help offset negative items on your credit score.
Rossman also recommends checking your credit reports to make sure they don't contain mistakes that may be dragging down your score. If you find mistakes, work to get them corrected as quickly as possible.
This story was reported on-air by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy.
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