Life in the 500s vs. life in the 800s: A tale of two credit scores

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Let’s take two different people who live in totally different cities, who are the same age, have the same job, the same money in the bank, etc. but with just one critical difference:

Person A has an exemplary 820 FICO credit score,

While Person F (see what I did there?!) has a 510 credit score.

They wake up in the morning at the same time, drink coffee, get dressed, and head out to work exactly the same…but what will their day, and their lives, look after that?

In this hypothetical, I match up the financial picture of two regular people who happen to have far different credit scores. Of course, this is just an illustration for education purposes, but the data and logic are sound.

Does an 820 credit score really mean you have a far more comfortable and lucrative life than if you were stuck with a 510 score?

Remember that we’ll focus on monthly payments added up for one year, but the crossroads in payments you make over the life of the loan can be HUGE!  In fact, the high debt load and high interest rates many consumers with low credit scores face keep them financially stunted, holding them back from filling up their savings account, funding retirement and investments, and paying off their mortgage.  So, the outcomes are exponentially different when stretched over time.



When Person A goes to apply for a mortgage, she has access to all of the best programs, terms, and interest rates.

Person F? They’d be lucky to rent an apartment, but homeownership is out of reach for the vast majority of people with low-500s credit scores. Of course, they can try to save up a bigger down payment, improve their score, and apply for a Federal Housing Administration loan, which has looser credit standards. But that’s still an uphill and far more expensive battle.

So, while Person A owns a home and benefits from home value appreciation and tax deductions, Person F just keeps sinking money into rent every single month. It’s no wonder why homeowners have a 35X higher net worth than renters!


Credit cards:

The use (and misuse) of credit cards is one of the most profound deviations among high and low-credit borrowers. In fact, Person F is basically forced to take whatever credit card is offered to them, despite the terrible interest rates and outrageous fees. In fact, banks and lenders actively target people with shoddy credit (or are inexperienced in financial matters, like college students) and often charge usurious interest rates in the high 20% range!

Not only is Person F probably paying high fees and hard-to-decipher late charges, but she is more likely to make only the minimum payment every month, which leads to paying for your original charge or purchase many times over. And once she’s in that Bermuda Triangle of bad credit and subprime credit cards paying only the minimum, it’s extremely difficult to escape.

Person A, however, manages their credit cards like a useful but not particularly necessary financial tool. They have the cream of the crop when it comes to credit cards with low interest rates, fees, and great benefits, and banks and lenders are competing for their business. They may use their credit cards but very likely pay off the balance each month, avoiding most interest charges, fees, and never falling into the minimum payment trap.


Student Loans:

It’s hard enough to navigate the world of educational loans and pay them off in a reasonable time, but with a marginal credit score, it’s downright scary. Of course, educational lenders look at your credit report just like any other and make their decisions accordingly.

So, Person A has WAY more options for reasonable student loans and funding programs than Person F. Over the common term of 10 years, a borrower with bad credit may pay up to $13,000 or more EXTRA (in addition to the loan amount) on just a $30,000 student loan!


Car loans:

When it’s time to go car shopping, Person F really feels like they’ve fallen into a shark tank, because the auto industry is notorious for taking advantage of people with low credit scores, more humble financial means, or are less educated about personal finance.

With a 520 credit score, Person F may be too embarrassed to even walk into the nice new car dealership and face rebuke, so she may turn to a smaller used car lot. There, she’s likely to be offered a car loan with rates and terms that should be criminal (and sometimes they are!).

Of course, that means spending way too much to buy a lower quality used car, too, which may break down more – time to put those repairs on the high-interest credit card! You can see the vicious cycle that’s in place to trap our friend, Person F.


Personal loans and other options:

The rent is due, and you don’t have enough? The car broke down (again!)? Your credit card payment just doubled for no apparent reason? Or, maybe a job loss, medical emergency, divorce, or other calamity shattered your fragile monthly budget. When this happens, people with bad credit and little or no savings often turn to unsavory lending options like payday loans, personal loans, and other illicit means to fill in the gaps.

Needless to say, that sets them further back in the vicious cycle, and many of those industries are downright predatory and nearly unregulated.

Person A, however, has access to low-rate credit cards, bank loans at the best rates, home equity loans, and probably has amassed some savings to cover the same shortfall.



As you can see, a low credit score has far-reaching implications that go much further than just qualifying for a home loan or taking out credit cards.

If we magnify this snippet of their lives over a longer term, we see a HUGE difference in finances, with Person A retiring comfortably and passing down wealth to their children one day, when person F continues to struggle and fight that uphill battle.

But the good news is that anyone can work to improve their credit score – and their finances. For that reason, Blue Water Credit offers extensive financial education that goes much further than just credit scores and managing debt. And when it’s time to improve that credit score in earnest, maybe before applying for a home loan, Blue Water Credit is the nation’s legal and ethical leader in effective credit repair.

With our help, Person F can turn it all around starting with their credit score, and have an 820 score one day, with finances that surpass Person A’s! Just contact Blue Water Credit to get started!


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