Bad Credit Is Expensive

This faith and finance podcast is underwritten in part by Christian Credit Counselors. If you're struggling with credit card debt but don't know where to start, our trusted partner Christian Credit Counselors offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full. Contact them to get out of debt today at ChristianCreditCounselors.org. Did you know that having a low credit score can cost you a fortune?

It's true. Bad credit is expensive. Hi, I'm Rob West.

With inflation and high interest rates, it's more important than ever to keep your credit score as high as possible, and you won't believe how much money that can save you. I have the numbers for you. Then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance. Biblical wisdom for your financial decision. Well, first off, you should know that the best reason to have great credit is not the money you save, but because God's Word tells us to. Proverbs 3.27 tells us, Do not withhold good from those to whom it is due, when it is in your power to do it. That means pay back your debts in a timely manner if you're able. If you can't, go to your creditors and tell them your situation and ask for more time or a different payment plan.

Don't hide from them. So let's define what is and isn't a good credit score. FICO, the largest and best-known company determining credit scores, uses a total range from 300 to 850 for its scores. A good score falls between 670 and 739. A fair score is 580 to 669, and poor is 300 to 570.

Now, you really don't want to be in any of those ranges if you can help it. That's because lenders determine the interest rates they will offer you based on your credit score. It's one number that can have a huge impact on your life. You want to have a very good score between 740 and 799 to get the very best interest rate offers. Above that, 800 to 850 gives you bragging rights but not much in the way of lower rates. All of this has become a lot more important in the last 18 months as the Federal Reserve ratcheted up interest rates in a misguided attempt to bring down inflation.

That resulted in much higher rates for mortgages, auto and personal loans, and credit cards. But remember, the higher your credit score, the less you'll have to pay an interest on those balances. So, what if you were able to raise your score by just 100 points?

How much could that save you? Well, let's look at how this works with a mortgage first. Let's say you have a 640 credit score. Today, you would probably get an interest rate of around 8% for a $300,000 30-year fixed mortgage.

But if your score is 740, just 100 points higher, you might expect to get a rate closer to 7%. That means for that same $300,000 mortgage, your monthly payment would drop around $200. And over the 30 years of the loan, you'd save about $72,000 in interest. Now, let's look at a 5-year, $5,000 personal loan. Your credit score, again, is only 640. You could expect an interest rate of almost 20%. But raise your score 100 points, and that rate drops to about 12.5%. That would mean a drop of $21 in monthly interest, saving you nearly $1,275 over the life of the loan.

Okay, one more. Credit cards. Your 640 credit score will get you an interest rate of around 24% today. If you're holding a $5,000 balance, your monthly interest charge alone would be around $100. But a very good credit score, 740 or higher, could get a rate closer to 20%. That would lower your monthly interest charge to $83, saving you more than $200 a year. Of course, we would hope that you're not carrying any credit card balance and that you pay it off in full each month.

That would save a whole lot more. Now, what are some other benefits of having a very good credit score? Well, it can also determine what you have to pay for home and auto insurance. The higher your score, the lower your premiums because you're seen as more responsible. Also, employers now use candidates' credit scores in their hiring decisions. One with a high credit score might be offered a job over someone else, all other qualifications being equal. That also translates into more money in your pocket. Okay, so that's the why for raising credit scores.

Now for the how. For starters, simply pay all of your bills on time and keep any credit card balance below 30% of your available credit. Your score will gradually increase. Now, you might have a low score because you don't have much of a credit history. You can build a history and raise your score by getting a secured credit card.

That's a card with a credit limit equal to the amount of money you deposit in a designated savings account and the bank uses it as collateral. It will then allow you to make charges on the card up to that limit, but don't. Instead, just make one routine budgeted charge a month like your electric bill. Then pay the balance in full when the bill comes in. Again, your credit score will gradually rise.

I hope that helps you understand the impact of having a high credit score. Your calls are next. 800-525-7000. We'll be right back.

and our own Rob West. Grow in wisdom and knowledge by connecting with a community of thousands of Christians driving to be good and faithful stewards at faithfi.com or by downloading the Faithfi app. What if your everyday purchases could support biblical causes? With the all new cash rewards visa card from Christian Community Credit Union, a portion of every purchase goes to ministries that spread the gospel, combat human trafficking, and protect vulnerable children. Plus, earn unlimited 1.5% cash back.

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This institution is not federally insured. We're back. I'm Rob West and this is Faith in Finance. Thanks for listening today. Thanks for taking the time. As we head into our calls and questions, I want to take a moment to ask you if you've downloaded the Faithfi app.

You can use it on your desktop or your mobile device. Alright, let's head to the phones. By the way, if you have a question, just call 800-525-7000. That's 800-525-7000.

You're going to go to Grand Rapids, Michigan. John, go ahead. Hello. I hope you're having a joyful and blessed day, first of all. I sure am. Thank you, John, and you too. Oh, I'm glad. Glad to hear that. Thank you. And you said you're going to tackle some subjects today.

I've got one that I need a whole team to tackle. I'm 66 years old and a few weeks. I'm disabled. I'm receiving Social Security. Fortunately, due to extremely extenuating life events, I'm in a financial situation where I have a total amount of $15,000 to sustain the rest of my life. So I'm trying to see if you may have some advice to help with how I might be able to live on $15,000 for I hope another 20 years. That's the question. Yeah, John, I appreciate that.

I'm so sorry to hear about your health challenges. So you said you're receiving Social Security every month in addition to that? That's right. Okay. Yeah. And are you able to pay your bills just based on Social Security alone?

Yes, I'm looking for cheaper subsidized housing, though. But otherwise, yes. Okay, so you're not having to draw anything out of the $15,000 every month? No. Okay.

Yeah. So that's the good news is that you've got a base of income that's supporting your needs. I love the fact that you said you're going to try to actually improve that, which could free up a little bit of margin, maybe even have a little bit of surplus left over. I understand that's not easy, and you're probably living very modestly, but anything you can do to cut expenses and, you know, add something to that $15,000 every month for the unexpected would be really key. Let's just be grateful that, you know, God and I'm not saying that you are ungrateful, but I'm just joining with you and saying, how wonderful is it that you have that base of income that covers your needs? Now, you might say, Well, what what if my needs exceed that at some point? What if I need long term care? I mean, that can run. That's very expensive.

And you're right. And so you would need to rely on Medicaid at that point, once you spent down your assets of, you know, that 15,000 and that would go quick, you'd need to go into a Medicaid approved facility that would provide that additional care throughout the rest of your life. But beyond that, you've got the Social Security. So I think at this point, you know, it makes things fairly simple, in that we're thankful to the Lord for his provision. He's your provider.

He will provide his God's word is clear about that. You've got this base of income that you're living within right now, you're going to try to improve that, which will give you a little bit of surplus every month, and that's great. And then you've got this emergency fund of 15,000.

Now, I know, you're probably looking at that and saying, that's just not a lot. And we're talking about, you know, sustaining me for the next 20 years of the Lord Terry's and he doesn't call me home and you're right. And that's where you know, you you're relying on, you know, government assistance, if you need it in the form of Medicaid, and, you know, Social Security, which you obviously paid into during your working life.

So, you know, I think at this point, it's just a matter of staying really laser focused on that spending every month just to, you know, keep your expenses as lean as possible, so that hopefully you can continue to build that 15,000. And let's just pray and trust the Lord that you won't have to use that, you know, at any point along the way. Does that make sense? That does make sense and praise God that I am a child of God and I have total faith. That's right.

He's brought me along this far. I guess part of my question is, would you advise against or for investing or seeking some form of investment of that 15,000? I wouldn't. Yeah, I wouldn't, John. I mean, you can do a little better than that than three. So you should you should be able to get four and a half percent right now on that money with a high yield savings account with an online bank.

And so I'd probably look at moving that you could go to bankrate.com and find a dozen banks online banks with FDIC insurance today that are paying four and a half percent plus, maybe as high as 4.6. So you could do a little bit better on that. But I don't think there's any reason why you would want to take any risk with that. That really is your emergency fund. And I would keep every bit of that safe and liquid and available if you need it.

Beautiful. And tithing. I'm sorry to keep bringing up my one question. Yeah. I was turning into a dozen, but can you tell me about tithing?

What's your advice on that? So New Testament giving, John, is giving freely. It's giving proportionately. It's giving cheerfully. And I think the gift that makes God smile is the one that is given with a glad heart and out of gratitude for all that he's done for us, the abundance that he's given us in Christ before the first dollar. And your ability to give proportionately back to the Lord as a steward of his resources is a demonstration of your trust in him, because if you believed it was dependent upon you to generate your income, then you'd want to hold everything every dime you had with a clenched fist. But if you believe God is your provider, you can hold it loosely and say, God, I want to continue to give systematically and proportionately as you bless me. And I think part of that blessing is the Social Security you're receiving. So I don't think there's a specific amount.

We don't want to be legalistic about it, in my view. I think that's between you and the Lord. But what I would say, at the very least, is let's give something systematically out of what he provides for you every month. Beautiful.

That makes total sense. And I truly appreciate your help today. All right, John.

May the Lord bless you, my friend. Thanks for being on the program. We're taking your calls today. 800-525-7000. That's 800-525-7000.

By the way, you don't have to call. Just send an email. AskRobatFaithFi.com.

That's AskRobatFaith, the letters F-I, dot com. Let's head to St. Louis. Hi, Shannon. Go ahead. Hi, how are you? I really appreciate your program and advice.

I listen to it whenever I can. Well, thanks. I appreciate that. I have a question regarding a pension. I have W-2 income and also self-employment income. My W-2 work does have a 403b, which I max out. And they also offer a defined contribution pension, and they do put funds into that.

And currently I'm matching it. My unemployment has a SEP, and I put the most that I can into that as well. My question is, regarding the pension, the funds I put in are after tax, and do you feel that it's a good move to match your employer when it's an after tax contribution into a pension plan? Or do you have a feeling, either way, whether you put money into that or not, or just let the employer put funds into it?

Yeah, that's a good question. So you're putting in what percent of your income into the 403b? I max it out. And how do you feel like you're doing, just in terms of are you on track for what you ultimately need to save? Do you know what your retirement savings goal is? I have a program through the online website that you can track that and plan ahead.

So I feel like I'm on track, but you just never know with the climate and how it shifts and changes. And the pension, how is that invested? What kind of return are you seeing on that? Around 7%. It's not high risk.

It's moderate, but right now I think it's down to around 3 or 4%. Okay, got it. All right, let's do this. I'm going to take a quick break, Shannon. If you don't mind holding the line, I'll give you my thoughts right around the corner. We'll be right back.

Thank you. I'm grateful for support from Eventide Investments on the faith and finance program. Eventide's approach to values-based investing is grounded in the belief that humankind was created in the image of God with intrinsic dignity, value and worth. Eventide calls this investing that makes the world rejoice. More information is available at eventideinvestments.com. That's eventideinvestments.com. Well, it's great to have you with us today on faith and finance here in our final segment today.

Let's head right back to the phones. Before the break, we were talking to Shannon in St. Louis. Shannon is fully funding his 403b. His employer is not only matching a portion of that, but also providing contributions to a defined benefit plan, a pension. He has the ability to contribute to that alongside his employer in an after-tax fashion and wondering if that makes sense. I think just given the returns on that, I'd probably, given that you're not experiencing any of the tax benefit on that, Shannon, and you're fully funding that 403b, I'd probably look to do something else with that that gives you a greater potential for return.

I realize you're going to take added risk with that, but you could just sock that away in a high-quality, solid mutual fund that has a good track record, a good manager, maybe even one of the faith-based investing funds that aligns with your values, that gives you the ability to grow that a little bit more over the next 20 years or so rather than the returns that come with that pension program, especially given that you're not getting any tax incentive there. Right. Okay.

Yeah, that makes sense. I've been on the fence about it and heard various opinions, but your thoughts are in a line with several others that show a similar sentiment. Yeah, I just think you can do better. The other thing you've got is even though there are some guarantees, I mean, you've got the risk of the company, you've got kind of all your eggs in one basket there, and so it's kind of nice that you'd be building assets outside. of that particular pension program since so much of your retirement's riding on that. So I think that'd probably be the best way to go. Again, if you want the more conservative route, I don't think there's any problem with continuing on the track that you're on. I just think you could do a little better elsewhere. Hey, thanks for your kind remarks about the program and for calling today, Shannon. God bless you, my friend.

Jenny is in Spokane. Go right ahead. I'm just wondering what's your view or take on structured notes? Ah, structured notes.

Yeah, not something we talk about a lot. But, you know, well, first of all, for the benefit of our listening audience, I mean, this is basically a debt obligation that has an embedded what's called a derivative. And that adjusts the risk return profile. So depending on what that derivative is, can make it a very conservative investment or very risky. So it's a it's a hybrid investment that puts these two things together with the bond and then the underlying asset.

And so the return on the structure note not only has the base of the investment in the bond portion, but then with the derivative, it's linked to, let's say, an underlying asset. It could be, you know, gold. It could be a group of assets.

It could be a stock market index. So, you know, they they try to offer some protection in terms of the downside. But then, you know, obviously there is the risk associated with it.

So a couple of the risks or disadvantages, if you will, Jenny, number one is you want to really have the intention of holding it into maturity, which sounds good in theory. But then you get into the credit worthiness of the issuer. So with any IOU, you bear the risk of the investment bank getting into trouble and forfeiting its obligations.

Obviously, that's limited, but it does happen. Lehman Brothers would be the example. And then if it does happen, the underlying derivatives can have a positive return, but the notes could still be worthless, which is actually what happened in 2008. And then you've got the lack of liquidity, which is the other reason why you want to hold to maturity. So these things rarely trade on what's called the secondary market, like you would buy and sell a stock.

So that means they're highly illiquid. So if you have to get out for any reason because, you know, the market was crashing, you needed the money, you know, your only option for an early exit is to sell to the original issuer. And so again, if you needed to sell it before maturity, it's unlikely the original issuer will give you a good price, assuming they're even willing to take it.

And then they don't offer any kind of trade. They don't trade after issuance. So, you know, the odds of an accurate daily price would be very slim. So you even knowing what the value is, you know, is difficult. And then finally is something called call risk, which a lot of investors overlooked, but it's possible for the issuer to actually call it back before its maturity regardless of the price. And that means you might be forced to receive a price below the value.

Now, you might think, well, that I mean, why would anybody ever touch these things? And there are some upsides. So as I said, it is a way to provide a little bit more stability and diversification. But, you know, be protected on the downside, which is why a lot of people go into these notes in the first place. So I guess given the complexity and some of those things that I mentioned, you know, what are your thoughts on that and how it fits into your overall plan?

Well, one question is, what is the normal maturity? Yeah, it just totally depends upon what type of structured note you're getting into. Somebody has told us about this. Yeah.

And he actually educated his financial guy about it. Okay, got it. Yeah, I mean, it really depends. It can go from six months all the way up to 20 years.

I would say the typical maturity is between two and five years. So we're not talking about, you know, a 30 year bond here. But, you know, you do need to understand that when you get into it. And again, it's all going to come down to what is that underlying asset that it's tied to? Is it a, you know, something very volatile, like a foreign currency?

Or is it a group of stocks or a stock index or even a commodity? So, you know, I think there's a wide range of risk profiles within structured notes. But if they're used properly and you understand what you're getting into, and it's one piece of a well-diversified portfolio, then, you know, it can be a way to reduce risk overall and get a decent rate of return. So the gentleman that was telling us about it was into the mortgage structured notes. Okay, mortgage backed securities.

Yes, we do have a well-diversified portfolio. Yeah, I mean, I would probably get a second opinion on that before I went into it. And so perhaps you reach out to a certified kingdom advisor there in Spokane, Jenny, and have that person look over the specific security that's being offered here. Because if it sounds good to be true, often it is. And I just don't like getting in things that are overly complex. But I realize other people, you know, have different risk profiles. And this may be somebody that's trusted.

And it may be somebody that's made a lot of money in these and done it in such a way where they minimize the risk. I just think whenever you're going into something that's complicated that you don't totally understand, I would absolutely get a second opinion. So there's some great certified kingdom advisors there in Spokane, Jenny, perhaps you reach out and have somebody who doesn't have a vested interest in this take a look at it. Just head to our website, faithfi.com. That's faithfi.com and click find to CKA. Thanks for your call today. Well, once again, our time went by way too fast. I hope you'll make plans to join us again next time for another edition of Faith and Finance. Faith and Finance is provided by FaithFi and listeners like you.