Here’s the bottom line: You can cut back on all the Starbucks Latte’s you want, but the savings will be a drop in the bucket when compared to what you can save if you have a solid credit score.
You guys probably remember from a few weeks back when I posted an article on why your savings account was getting decimated. You probably also remember that I listed a bunch of things that people like you and I waste money on. One of those things was a Latte. If you drank one Latte every other day it would cost you $684 at the end of the year.
So now you’ve put $684 precious bucks back into your savings account. Optimistic, you cut back on eating out in restaurants, entertainment and drinks and at the end of the year you’ve put back a few thousand dollars into your savings account.
Now prepare to get mindblown…
All of the savings that you made by cutting back on unnecessary expenses is at best peanuts when compared to what a good credit score can do for you. Yes, that’s right, that 3 digit number can literally put back tens of thousands of beautiful dollars back into your savings account over the duration of a loan. Take a look at this super important table which shows your mortgage payment based on your FICO score:
Let’s say you want to buy a really really cheap house in California, so you borrow $400k on a 30 year fixed rate mortgage. If you had a stellar credit score your monthly mortgage would be $1,801 every month. At the end of the 30 years you would have paid $248,314 in interest.
Now assume that you never tried building up a good credit score and you decide to get the exact same mortgage as above. This time your monthly mortgage will be $2,174 every month and at the end of the 30 year loan you would be out of $382,644 in interest. Having a stellar credit score just saved you an insane $134,330. Try figuring out how many Latte’s that buys you.
Home loans, car loans, and credit card loans are all charging you interest based on your credit score. You are either bleeding out a lot of money through these loans or saving a ton of money So forget the fallacy of saving on Latte’s. Cutting back on minor expenses will not provide you the ultimate financial freedom.
Verdict: Your credit score will single handedly save you more money than any other type of savings that you can make. You can potentially be robbing yourself of tens of thousands of dollars if your credit score is weak.