As we have seen with the recent sub-prime lending bust, people with damaged credit can qualify for home loans, even when they probably shouldn’t. Car companies advertise "no credit, bad credit, no problem." How can they do that? They charge a lot more. Just because you can qualify for something doesn’t mean that it is a good idea.

Instead, I’d like you to consider this. If you have trouble qualifying for a loan at the current market rate because of your credit history (or lack of one), try this novel approach. Wait. Don’t buy it. Instead, put off the purchase as long as you can. In the mean time, save money and work on improving your credit score. I realize this suggestion doesn’t seem like much fun. If you’ve already been scouring the real estate ads to find the home of your dreams or test driving cars, it’s hard to stop that momentum. I know it’s tough but it will help you so much more if you just wait.

Recently, I was teaching a class for unemployed and recently re-employed young people. One girl in the class proudly announced that she was buying her first home. In fact, she was having one built and doing some special financing with a national builder. As she bragged to the class, she mentioned that the builder offered to clean up her credit report for her as part of the service for getting her qualified for the home. The builder is also rolling her down payment into her mortgage so she won’t even have to come up with any cash. Then, she went on to say that she had to buy a car at 21% interest because her credit was so bad. I didn’t want to burst her bubble, but I am guessing that the mortgage payment, home repairs, taxes, insurance and all of the responsibilities of home ownership may be tough for this girl to keep up with. I sure hope she proves me wrong. She won’t have to learn any savings discipline to come up with a down payment and the builder is "fixing" her past credit mistakes for her. It just seems to me that the builder is working hard to get her into a house that she probably should not qualify for. I don’t know how much interest she is paying on that home loan but I bet it’s a lot.

The sad fact is that many people have made credit mistakes or that circumstances beyond their control have negatively affected their credit. Another sad fact is that many people never do anything to improve their credit. They leave it damaged. When they need to borrow money to buy a home or car, they end up paying a lot more. Studies have shown that people with damaged credit will pay $250,000 more over their lifetime than someone with good credit.

MyFico.com has the coolest tool, a loan savings calculator brought to you by Equifax, one of the companies that compile credit scores. Did you know that there is a huge difference between someone financing something with a credit score of 559 and a credit score of 720? If you take into account that many people with the lowest credit scores also have the lower incomes, you can easily see how hard it is to make it these days.

For example, a person financing a $100,000 home with a 720 credit score would pay a monthly payment of $590 and total interest in the amount of $112,448. The same house financed by a person with a 559 credit score would cost $1105 per month and $297,810 in interest. That’s a difference of $515 per month and $185,362 in interest!

Let’s use a car loan in this example. If you finance a new car at $20,000 for 5 years with a credit score of 720, you’d pay $385 per month and $3099 in interest. If your credit score is 559, that same car would cost $476 per month and $8545 in interest. That’s a difference of $91 per month and $5446 in interest for the same car.

It seems to me that these people are missing some vital information. Even the worst credit can improve and can get drastically better if you start paying things on-time and just give it a little time. If you could wait a few years to buy a house or car and work to improve your credit score, it could literally save you hundreds of thousands of dollars in interest. That staggering information would be pretty inspiring to me!

Hopefully, by now I’ve convinced you that improving your score before you purchase something major is a good idea. Here’s how:

While you won’t see a change in your credit score overnight, all of these things can help to greatly improve your score over time. There’s never been a better time than now to start boosting your score. Once you’re enjoying the benefits of lower interest rates and more “yes!” answers when you apply for credit with traditional lenders, like your local bank or credit union, you’ll see just how important good credit can be. Not to mention all the enjoyment you’ll get from counting all of the money you’ll be saving from not paying those higher interest rates.