Low Credit Score? It Could Be Costing You $102K Over A Lifetime

If your credit score is on the lower side, you could be paying a "subprime tax" that adds up to more than $100,000 over the course of your life, according to a Bankrate study. The study found that borrowers with a 620 credit score or lower pay an average of $3,400 more each year for essentials like loans and insurance compared to those with higher scores.

For roughly one in five U.S. adults — the share of Americans with subprime credit — that extra cost can have a big impact on financial stability.

What Is the "Subprime Tax"?

The subprime tax refers to the higher costs lenders and insurers charge borrowers with lower credit scores. Bankrate found that, on average, this works out to about 4% of a typical U.S. household's annual income.

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These extra charges can appear across many common financial products, including:

• Mortgage loan interest: $1,330 per year on average
• Auto loan interest: $745 per year
• Auto insurance premiums: $514 per year
• Home insurance premiums: $398 per year
• Personal loan interest: $328 per year
• Credit card interest: $89 per year

Over five years, these costs total roughly $17,000. Over 30 years, they add up to more than $102,000, based on national averages for loan sizes, interest rates, and insurance premiums.

Why Borrowers With Lower Scores Pay More

From a lender or insurer's perspective, a lower credit score signals higher risk — whether that's the possibility of missed payments or more frequent claims. To offset that risk, companies typically charge higher interest rates or premiums.

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"There is no question that you pay more for credit when you have a lower credit score," TransUnion TRU Vice President Michele Raneri told Bankrate. "And so the higher credit score that you can get…you pay less for it."

High interest rates in the current economy can make this gap even larger. Not only are subprime borrowers charged more when approved, but they may also face more rejections, making it harder to access affordable credit.

How to Break the Cycle

The good news is that your credit score isn't fixed forever. Experts say small, consistent changes can help you move into a better credit tier — and save money.

Margaret Poe, head of consumer education at TransUnion, recommends starting with your credit reports. She told Bankrate that consumers should look for late payments, high balances, or errors, and make a plan to address them. Payment history and credit utilization – how much of your available credit you use – are the two largest factors in your FICO score.

Other expert tips include:

• Pay on time, every time. Even one late payment can hurt your score.
• Lower your credit utilization. Try to keep balances below 30% of your available credit.
• Build a positive history. Credit-building apps and rent-reporting services can help by adding on-time payments to your credit file.
• Avoid unnecessary applications. Multiple credit checks in a short time can temporarily lower your score.

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The Long-Term Payoff

While improving your credit score can take time, the financial payoff is significant. A stronger score can mean lower mortgage rates, cheaper insurance premiums, and better loan offers. Over decades, avoiding the subprime tax could save you enough to cover a down payment on a home, boost your retirement savings, or build a healthy emergency fund.

As Poe puts it, understanding your credit and taking action "can potentially turn these things around" — and keep thousands of dollars in your pocket.

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