By now, you've seen several examples of how bad credit can cost you money. Likewise, it's obvious that good credit will save you money. However, there's more to the story. A higher mortgage payment does not exist in a vacuum. It will affect your entire financial situation. Therefore, you are paying opportunity costs in addition to the more obvious costs.

The Golden Years

First off, consider how higher monthly expenses might affect your ability to save. If you remember previous examples (the car payment and mortgage examples), you know that it's easy to spend an extra $450 per month because of bad credit. Those extra dollars don't really buy you anything. Instead, they're paying for interest that you don't need to pay. What if you saved that money for your retirement instead?

Consider this simplified example. If you saved $450 per month and earned a 9-percent rate of return, you might have saved about $276,000 after twenty years. That's not money you kissed goodbye and gave to your lender, it's money that you can use for whatever you want. You can use it as part of your retirement paycheck, or you can use it to buy yourself something nice.

So many people don't save anything for retirement, simply because they don't have any money left over at the end of the month to save. This problem can be avoided, in part, by building and keeping good credit. Once your credit goes downhill, it can be hard to do other important things.

A Vicious Cycle

Having less-than-perfect credit can build on itself in a variety of ways. Consider how potential employers look at your credit. They might not want to hire you unless you have great credit. Why might you have less-than-perfect credit? It could be because you need more money. If you could get a better job, then you might have more money. However, it's hard to get that better job with blemishes in your credit reports. Getting yourself out of the hole can be hard work.

Less Leverage

In general, having good credit makes it easier to borrow. You can borrow more, or you can borrow at a more attractive rate. One of the most important things that people borrow for is their home. They use a great deal of leverage to purchase a house. While leverage is extremely risky in some areas (like speculating in the stock market or on investment properties), almost anybody will tell you that it's okay to borrow 80 percent or more for your primary home purchase.

Part of the reason that homes build wealth for people is the leverage involved. You can start with just a little bit of money and end up with a lot of equity over the years. Of course, you need to be able to get that big loan. If you have questionable credit, you have less opportunity. You might be forced to buy a less-expensive home, perhaps in an area that won't appreciate as much as other areas. Even though you might have the same down payment as a buyer with good credit, you can't get into the same house.

Less Coverage

Another negative of having bad credit is that it's harder to get the insurance coverage you need. You leave yourself with too much risk. Consider the risks of having your home uninsured, even for a brief period of time. This could happen if your insurance company decided not to renew your policy, or if the rates were so high that you had to find something else. You could be risking thousands of dollars or more during this time.

Less Fun

Finally, having bad credit could take a toll on your mental health. You won't have as much money in your budget for the finer things in life — vacations, entertainment, and life's little luxuries. If nothing else will motivate you, imagine a serene scene on a pristine beach. It is easier to get there if you have a few extra dollars each month. Not only will you be able to splurge now and then, you'll also avoid unpleasant situations. You won't have to spend as much time hunting for decent loans and insurance products, and you won't have to work a second or third job to make ends meet.