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[The following is a partial transcript of this episode of The Scott Alan Turner Show. Listen to the full episode to hear this story, listener questions, money hacks, and inspiring stories of people that are changing their financial lives. Subscribe to the free podcast on iTunes or Google Play]
In This Episode
- Do you have enough insurance to protect your valuables?
- I really don’t understand money (Eva, Arizona)
- Should I stick with my advisor or DIY (Brett)
- Are HVAC contracts worth the cost (Taylor, Macon, Georgia)
- Is it ever good to lease, like for equipment (Kylie, Maui)
- What should I be aware of when hiring a moving company (Lily, Virginia)
- Which used car should I buy (Steph, Australia)
Today I’ll share real world numbers as to how much you can save with a great credit score. It’s huge! We’ve never done this before.
A good FICO score is now more important than ever to save you money. I’ll get to the dollars in a moment. If you’re new to credit scores, they range from 300–850, the higher the better. The higher the score, the more money you save on interest when you apply for a mortgage or car loan. Credit scores factor into potential jobs when they do a background check. And even if someone wants to rent or lease an apartment.
There are many reasons people have low scores – overspending, medical debts, too much car or house. I believe lack of education is often the root cause. People get stuck and then spiral down the rabbit hole. It’s hard to get out. The good news is credit scores are like grades in school. You can improve them.
From one of the financial news rags:
“This measure of creditworthiness has since become a status symbol for overachievers and perfectionists who can’t stomach less than stellar grades. Obsessive types keep a vigil on smartphone apps that send alerts when their credit score changes. Many fret about making the “800 club,” as the class of first-rate borrowers is known among those who care.”
The 800 club is a thing. A kind of status symbol.
I personally don’t care if I have a credit score of 783 or an 837. I care about saving money. And I know you as a loyal listener of the Scott Alan Turner show do too. The big difference in saving comes when a person has a low score vs. a high score.
Let’s just look at home insurance.
Someone with an average credit score will pay about 30% more for home insurance. Link in the show notes if you want to read that study.
How about a poor credit score? The average annual premium between Poor credit scores and Excellent credit scores was double.
Average was $1,800 for poor scores, $900 for excellent scores. That’s for home insurance.
That’s $900 a year in lost money for a bad credit score. If a person doesn’t work on improving their credit score, year after year that’s $900 out the window. It adds up.
The insurance industry sees people with lower scores as higher risk. Those people pay more.
Suppose someone has a lower score. Here’s how to improve your FICO score to get the best insurance rates:
- Pay all of your credit cards, car loans, mortgage and installment loans on time.
- Keep your card balances low
- Don’t open new accounts unless you need to
- Shop around your insurance rates every year
That’s how you save money. Over your lifetime it amounts to tens of thousands of dollars. Why not keep it, right? You worked for it. Do you want it or should the insurance companies get it?
California, Maryland, Massachusetts – get a free pass. Those states by law can’t use credit scores to calculate insurance.
Finally, California does something better than Texas!
Stay classy San Diego.
What do you think about the ‘I don’t have a FICO score crowd’? I’m not judging them, but I do want to help them. Congratulations if you’ve given up on credit cards and credit scores and live an all cash lifestyle. I respect your decision. It’s like people who give up desserts. I admire that. Me, I’m eating a donut once in a while.
Know this – you’ve narrowed your choices down for your insurance to a few companies. I hope they give you the best rates, and will underwrite all your policies. Here’s what I know about life – if you have only one or a few choices, you pay whatever the price is, and that’s that.
It’s like if a person lives in an area with a Walmart, Kroger, Trader Joes, and Whole Paycheck. One on each street corner. They decide tonight they are going to cook the 100% grass fed, free range, no antibiotics Tofu. Well, they can only buy that at Whole Paycheck. So I guess they are going to pay whatever it costs because they have no choice. They can only do business with this tiny number of companies. Does that tiny number of companies have the best rates? All the time? Every year? Year after year? For every person? Of every background and income? You know this already, but it sounds pretty unlikely.
Listen, I want to stop your paychecks from going to the insurance companies when they don’t have to. That money belongs in your wallet, right? Everyone hates paying for insurance. You see it as a black hole sucking in money and never getting anything out of it. It’s great when we need it though. Insurance is like taxes though. You shouldn’t pay any more than is necessary.
Going from average to excellent you’re going to have, what, an extra $500-$600 more to do with what you want? Nice! Start an emergency fund. Save more for the future. Go to Hawaii with the new cheap flights going on now.
Realize FICO scores matter. They are important. Link in the show notes to Discover, you can get your FICO score for free.