What is the Cost of Poor Credit?

More than one in four Americans has subprime credit, according to research conducted by the Urban Institute. This rating has substantial effects on the rates and costs of borrowing; for a $10,000 loan, someone with subprime credit can expect to pay about $3,000 more than someone with good credit. Because vulnerable populations, such as minorities and low-income citizens, are more likely to have subprime credit, this disparity presents a serious issue and can exacerbate poverty gaps. Many people believe perpetuating credit myths that can harm their scores and thus their financial well-being, such as: everyone has a credit score; you have to be wealthy to have good credit; paying your bills on time will translate to a good credit score; inquiries can ruin your credit score; having multiple credit cards is bad for your credit score; you have to go into debt to build credit; and rent, payday, and auto-title loans can help you build a credit score. It is important for workforce development programs and self-sufficiency stakeholders to understand these myths and disseminate correct information to help raise the subprime credit scores of people with whom they may work.