Insurance

Everything You Ever Wanted to Know about Lemonade.com

June 17, 2019 By Tamila McDonald Leave a Comment

Nearly everyone needs some kind of property insurance. If you rent your home or apartment, renter’s insurance can help you cover the cost for replacing items that are damaged or destroyed by a covered event, like an electrical fire. People who own their home need homeowner’s insurance. This goes a step further, covering both damaged items and structural repair costs. Finding good and affordable coverage can be a daunting task. However, Lemonade.com, a property insurer, aims to simplify the process while keeping your costs low.

What is Lemonade.com?

Lemonade.com is a property and casualty insurance company. It embraces technology to help keep the company’s overhead costs low, and it passes those savings onto the customers. Additionally, Lemonade believes in transparency.

All of their customers pay a simple flat fee for the service, which means Lemonade has no incentive for denying or delaying any claims. With traditional insurers, unpaid claims lead to bigger profits. Since Lemonade only takes in a flat fee to cover its costs, denying claims doesn’t create a financial benefit.

If there is any leftover money after covering all of the valid claims, Lemonade doesn’t keep it. Instead, through its Giveback program, the extra cash is donated to various charitable causes. Customers even get a say in where this money goes based on the virtual group they join.

Lemonade.com Coverage Options

In order to get a policy with Lemonade, you have to either use the company’s Android or iOS app, or head to its website. By issuing claims digitally, Lemonade can keep operational costs low, allowing policyholders to get more affordable coverage.

With Lemonade, you get two primary coverage choices. The company offers both renter’s and homeowner’s insurance, so you need to select the option that aligns with your living situation.

Renter’s insurance can cost as little as $5 a month while homeowner’s starts at $25 a month. Your exact premium will depend on a range of factors, including anything from the amount of stuff you own if you have any high-value items (jewelry, computers, etc.), your credit history, the size of your deductible, and your number of recent claims. For homeowner’s insurance, the property’s details also come into play.

Lemonade considers other risks as well. For example, if your area is susceptible to severe weather, that may lead to a higher premium. Additionally, if you have home security devices, your premium might be lower.

Once you create your policy, you can pay your premium with a credit or debit card. If at any point you no longer need the coverage, you can easily cancel the policy.

With any policy, you also get additional coverage when your items are outside of your home. For example, if your laptop is stolen while you are at a coffee shop, you are covered for that loss. Further, if your dog bites someone, you have might coverage for that too.

Filing Claims with Lemonade.com

While no one ever hopes to file a claim, it is nice to know that Lemonade’s process is incredibly easy. Use the smartphone app and tap the Claim button. Then, follow the simple process to submit your claim. It usually only takes a few minutes as long as you can provide sufficient information about the loss or damage.

During the process, you do need to submit a short video. In that clip, you describe what happened in your own words, making it easier for Lemonade to get a realistic picture of the situation.

If you have receipts to show the value of their items, you can submit those too. But, that isn’t a requirement; it can just help speed up your claim.

Once you submit those details, you give Lemonade bank account information for a wire transfer. Once approved, Lemonade sends the payment (minus your deductible) straight to your bank account.

In most cases, the approval process is almost instant. However, there may be situations where Lemonade needs to take a closer look, so it can take longer if a manual assessment is necessary.

Where Lemonade.com is Available

Lemonade.com doesn’t offer coverage in every state yet, though they are continuously expanding the company’s service area. As of June 2019, renter’s, condo, and homeowner’s insurance are available in:

Arizona
California
Colorado
Connecticut
Georgia
Illinois
Indiana
Iowa
Maryland
Michigan
Nevada
New Jersey
New York
Ohio
Oregon
Pennsylvania
Tennessee
Texas
Virginia
Washington DC
Wisconsin

Rhode Island residents have access to renter’s and condo insurance, while Arkansas and New Mexico residents can sign up for renter’s insurance. However, Lemonade continues to expand, so other states and options could be forthcoming.

Is Lemonade Always Cheaper?

While Lemonade aims to offer the best price possible, that doesn’t mean they will be the cheapest in every scenario. The company’s policies do tend to cost less, but each insurer uses different pricing models, so not everyone will find a deal with Lemonade.

However, since getting a no-obligation quote is free, you can also go through the process and see if Lemonade is right for you. If so, then you can sign up and have coverage in just minutes. If not, you can keep looking elsewhere until you find the right insurer for your needs.

Do you use Lemonade.com? Are you interested in trying Lemonade the next time you need insurance? Tell us about your experience or share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Should You Buy Insurance To Cover Your Funeral Expenses?

May 17, 2019 By Susan Paige Leave a Comment

We all know its going to happen one day, so why put off planning ahead?

Nobody enjoys talking about death, but part of being an adult is dealing with the uncomfortable because it’s the right thing to do.

We have insurance to cover our car, health, home and much more. But should we have insurance to cover our end of life expenses?

The answer: It depends.

Let’s face it, if you don’t have a plan in place to pay for your final expenses, your family will pick up the slack.

Think about that for a moment.

Your family will step up and pay for your funeral costs if you do not.

Every time someone loses a loved one, they want to see them honored in a respectable and dignified way. That’s why so many families take on debt or sell personal belongings just so they can honor whom they lost.

Funerals aren’t cheap either. On average, a funeral can cost up to $10,000 depending on the service.

What if your family had to pay for a bill that large? That is a lot of money for anyone to come up with let alone with no time to prepare.

The truth is most families simply don’t have that kind of cash laying around which means they have to resort to less than ideal means of raising money.

Ultimately, if you don’t have the cash or assets on hand right now to pay for your burial expenses, then yes you need insurance to cover this eventual loss that your family would experience.

Oftentimes insurance companies will market policies specifically for this cause. They’re usually referred to as burial insurance plans or final expense insurance.

They’re really just small life insurance policies. The idea is the policy insuring your life will payout a cash benefit to your beneficiaries so they have the money to pay for your funeral.

Most companies that sell these plans allow you to buy as little or as much coverage as you want.

That’s great news if you want to be cremated. If so, you’ll only need a little bit of coverage. Thankfully you can buy small amounts such as $5,000 in coverage.

Most of the time these plans are whole life which simply means it will never expire. You can forever count on the policy being in force for as long as you live. However, some companies sell a term policy that will expire between 80-90. Make sure you get clarification up front before you sign on the dotted line.

Either way, qualifying appears to be very simple. There usually aren’t medical exams required and many common health issues are accepted by most insurance companies.

What if you are really unhealthy; will you be able to get coverage?

The answer is yes! Some (not many) insurance companies have plans where your acceptance is guaranteed. They have no medical questions and you cannot be turned down. Granted, they cost more and seem to all have a waiting period provision. However, that’s the price you pay if you are in a really high-risk category.

At the end of the day, if you know your family will not have to pay for your funeral bills, you’re all set. Pat yourself on the back for a job well done.

However, if that is not your situation, you should seriously consider getting life insurance to ensure your family can remember you rather than what it cost to see you off properly.

5 Benefits to Look For This National Employee Benefits Day

April 2, 2019 By Tamila McDonald Leave a Comment

Today is National Employee Benefits Day — a day to recognize everything professionals do for the workforce and take a closer look at the benefits available ro today’s worker.

In most cases, employees only pay attention to their benefits when they make plan selections or change jobs. But, understanding what is out there is always beneficial. With that in mind, here are five benefits everyone should look for, either in your current job or the next one.

1. Medical and Prescriptions

In most cases, medical and prescription benefits go hand in hand. These plans not only help you control the cost of your healthcare needs, but they can also protect you against financial disaster.

Medical bills are one of the leading reasons for bankruptcy, so having sufficient coverage is a must.

2. Dental Coverage

While these don’t inherently go together, they are usually additional benefits beyond medical and prescription, even if they fall into a similar category.

Although there are ways to get free dental care, it doesn’t usually cover everything. The cost of dental care can be significant without insurance, so many people choose to skip treatments they can’t afford. Dental insurance helps offset these expenses, making your care more affordable. Ultimately, your oral health is important, so finding a job with dental benefits is always a smart move.

3. Vision Benefits

The same goes for vision plans. Whether you currently need corrective eyewear or not, neglecting your vision can have serious consequences. Without insurance, the cost of appointments, glasses, and contacts can add up fast. Plus, numerous conditions can affect the eyes, so you need to keep up with your exams.

Vision insurance makes it easier to stay on top of your overall health, so seek out these benefits when possible.

4. Retirement Plans

Saving for retirement is a must. If your employer offers a retirement plan, then keeping up with this form of savings is a breeze. Usually, you can have the monthly payment taken straight out of your paycheck. And, in some cases, you can get additional funds from an employer match.

Having an employer provide you with a retirement plan can be significantly more convenient than setting up one yourself. Plus, you’ll be much less likely to ignore your retirement savings, ensuring a more stable financial future.

5. Paid Time Off

Everyone has obligations outside of the workplace, and most people experience occasional illness. But, without paid time off, they can be hard to manage. You might struggle to make doctor’s appointments, handle the needs of your children, or simply to recover after getting sick if you can’t get away from work. But, with suitable leave, you can take the time you need without having to sacrifice anything from your paycheck.

What National Employee Benefits Day Is All About

Ultimately, National Employee Benefits Day is a great time to review what you have or what you want from your job. Not every company offers the same benefits, so look closely at their programs to ensure you get everything you need.

Which kinds of employee benefits do you value the most, readers?

What Is Your Insurance Score and Why Does It Matter?

March 19, 2019 By Kathryn Vercillo Leave a Comment

Do you know what your insurance score is?

Everyone knows what a credit score is, and nowadays, it’s fairly easy to access for free.

However, many people don’t know what an insurance score is, let alone what their own number is.

What Is an Insurance Score?

As you might have guessed, an insurance score is similar to your credit score. However, it applies specifically to insurance rates. In other words, an insurance company will consider this number when determining your rates. Like with a credit score, if you have a good insurance score then you’ll get better rates.

Your score is directly linked with your credit report. The insurer evaluates the data in that credit report. They want to know the likelihood that you will file a claim in the future. To determine this, they examine your past. If your credit report indicates that you aren’t likely to file a claim, then your insurance score is better. As a result, you get offered better rates. Essentially, the insurance company rewards you for being unlikely to require their services.

Basically, research shows that there is some correlation between specific aspects of your credit report and the likelihood that you’ll get into an accident or need to file an insurance claim. Therefore, starting in the 1990s, some states began allowing insurance companies to use these numbers to determine customer’s rates. However, not all states allow this, even today. Therefore, whether or not your credit impacts your insurance rates will vary depending on what state you are in.

Insurance Score vs. Credit Score

It’s important to understand that these two scores are not the same thing. Obviously, they are related. If you have a good credit score, then you are also likely to have a good credit-based insurance score. In both cases, you have good credit. Therefore, lenders will trust you to make your payments on time and in full.

However, just because you are good at making payments doesn’t mean that it’s smart for them to give you insurance. Yes, you’ll likely make your monthly insurance payments. They do take that into consideration. However, if your credit report indicates the likelihood that you’ll file frequent claims, then your insurance score might not be great in spite of your good credit score.

Insurance companies will look at your history of accidents and claims to determine your rates. Your credit score and report play a part but aren’t the only determining factors. Insurance companies also look at information in two big databases (called A-PLUS and CLUE) to get a sense of the risk they take on when they insure you. As a consumer, you are entitled to one free annual report from each of these companies. Therefore, you can order yours to get a sense of what insurance companies might see when they consider your rates.

Where to Get Your Insurance Score

Major credit businesses, such as FICO and Transunion, generate credit scores. Moreover, individual insurance companies sometimes use their own methods of calculation to get your credit score. For example, Progressive has its own data calculation tool. Therefore, there are slight variations in credit scores depending on who does the calculations.

This may sound odd, but if you think about it, it’s similar to getting your credit score from each of the three major companies (Experian, Equifax, and TransUnion). The scores are all similar, but they may not be exactly the same.

What Does This Score Affect?

If you live in a state that allows insurance scores for underwriting and rate determination, then you might want to know how this can affect you. Typically, you’ll see these scores used in two situations:

Auto insurance (including other vehicle insurance such as boats and RVs)
Home insurance (including homeowner’s and renter’s insurance)

These types of insurance are often mandatory. If you drive, then auto insurance is mandatory. If you have a home mortgage, then most likely homeowner’s insurance is mandatory. Therefore, you are probably affected by your insurance score even though you might not have known before today what that score even was.

Sometimes health insurance and life insurance plans also consider insurance scores, although this is less common.

Calculating Your Insurance Score

Since there are so many different places that might calculate your insurance score, it’s difficult to know exactly which factors will be taken into consideration. However, the companies all consider a variety of factors.

In terms of your credit report, they all look at the same basic information. What is your credit score? How good are you with making on-time payments? Do you have high amounts of debt? The lower your credit score, the lower your insurance score is likely to be.

In terms of other factors, it will depend on which type of insurance you’re applying to get. For example, auto insurance companies may look at:

Overall driving history
Tickets you’ve received in recent years
Auto accidents
Claims that you have filed with previous auto insurance companies

If you are looking at homeowner’s insurance, then you might be aware of the following:

Claims that you have filed with previous home insurance companies
Safety features such as house alarm systems

It’s important to be aware that there are certain factors that insurance companies are not allowed to take into consideration. Your home’s location, your race or cultural background, and your marital status are all off-limits. In other words, they can look at your potential risk as an insurance consumer, but they can’t factor your personal details into that risk assessment.

Like with a credit score, you’ll receive a number as your score. It’s typically between 200 and 997. Generally speaking, if you have a score of over 770, then you have a good score. In contrast, if your score is under 500, then you have a poor rating. However, this may vary depending on the company.

How to Improve Your Insurance Score

If you have a good score, then you get better rates on insurance. Therefore, a good score means that you don’t have to pay as much for coverage. As a result, it makes sense to do all that you can to improve your insurance score.

First off, you should take all steps necessary to improve your overall credit score. After all, it does play a big part in determining your insurance score. When you consistently make on-time payments, have a strong debt-to-income ratio, and meet the other demands to achieve good credit, it goes a long way towards reducing your insurance costs.

Furthermore, the more time that passes without filing a claim, the better your insurance score will be. Therefore, unless it’s absolutely necessary, avoid filing claims with your insurance companies. Although you may have to pay a bit more out of pocket at first to get that good score, the score means you’ll pay less on your premiums over time.

Read More:

Affordable Insurance: What You Need to Know to Budget for Any Type of Insurance

March 7, 2019 By Kathryn Vercillo Leave a Comment

Affordable insurance is available for every type of insurance that you might need in your life. However, you have to do some research to be able to get it. More importantly, you need to do some serious thinking about what’s right for you. After all, what’s affordable insurance for one individual or family could be completely out of reach for another.

What Is Affordable Insurance?

Affordable insurance generally meets the following requirements:

It covers at least the minimum of your required insurance needs.
You take your household income into careful consideration.
If it’s appropriate, you add additional insurance beyond the minimum.
You shop around for the best costs available to meet your needs.

For example, if you’re a driver, then auto insurance is required. However, you typically only need minimum coverage. However, you have to take into consideration your income, the value of your vehicle, and the likelihood of needing to utilize your insurance. Weighing those factors, you might determine that in your case, you need full coverage. Therefore, you shop around for the best full coverage auto insurance available to you.

Likewise, most people don’t consider life insurance a priority. Therefore, in the overall scheme of affordable insurance options, you won’t likely choose to sign up for it. However, if you have dependents who rely on you for your income and/or you are at high risk of early death, then you might determine that this type of insurance is necessary. If so, then you would shop around to find the best option.

What Type of Insurance Do You Need?

The first step in determining what’s affordable insurance for you is to figure out what types of insurance you actually need. There are three types of insurance that are mandatory for many people. First, if you drive a car, then auto insurance is mandatory. Second, if you have a home mortgage, then home insurance is likely mandatory. Finally, health insurance was mandatory under The Affordable Care Act. While there are no longer penalties for not having health insurance, most people agree that the risks of not having this insurance outweigh the benefits, so it’s widely still considered a requirement by most people.

Therefore, if you own a home and a car, then your minimum insurance requirements will be for home, auto, and health insurance. In a moment, we’ll look in more depth at affordable insurance for these three key areas of life. However, you should also review other common types of insurance, which you may need depending on your unique situation. Common types of insurance people often get include:

Dental insurance if your health insurance doesn’t cover this
Disability insurance in case you become unable to work
Insurance specific to the type of business that you own
Liability insurance to protect you from lawsuits
Life insurance for your beneficiaries
Natural disaster insurance to supplement your home insurance
Renter’s insurance if you do not own your home
Pet health insurance if you have pets in your own home
Property insurance to cover the extras that your renter’s insurance or home insurance excludes

Review Your Household Income

In order to determine which insurance you need, you will have to take a look at your household income and budget. How much do you make? When budgeting, what percentage of your income can you afford to let go to insurance payments? People generally dedicate between 2% and 10% of their income to insurance payments.

If you have a high-risk lifestyle that requires a lot of insurance, then you might be on the high end. If you are young, healthy, and don’t own a house or car, then you might be on the low end. In general, it’s best to try to stay within the 3%-5% range when you budget for insurance.

Therefore, you should calculate what that range is for your particular income. For example, if you take home $5000 per month, then your monthly budget for insurance payments is between $150 and $250. That’s the amount that should be affordable insurance for you.

First, you’ll start with the basics. You’ll search for the most affordable health, home, and auto insurance. Then, if there’s any room left in your budget, you can start adding on further types of insurance.

How to Get the Most Affordable Insurance

Once you know the types of insurance that you plan to get, then it’s time to shop around to get the most affordable insurance in each category. Some people choose to get all of their insurance from the same company. Often, this is the most convenient option. It can also be the most affordable. However, as you do your research, you should compare the costs of working with different companies for each type of insurance as well. It requires a bit more time to figure out the details but can be well worth the money saved.

Health Insurance

When you figure out your income, it’s not just in order to set your budget. It’s also to help you find out what you qualify for in terms of programs for affordable insurance. You might qualify for Medicare, Medicaid, or aid for families with children. You might also qualify for subsidies, price-adjusted plans, and other income-based cost reductions. Look at these first when trying to get affordable health insurance.

Beyond that, you can look at a variety of different ways to obtain health insurance including:

Employer-supported health insurance plans
Catastrophic or “emergency only” health insurance
Opting for a high-deductible plan
Staying on your parent’s plan until age 26
Opening a Health Savings Account

Health insurance is a complicated topic, and the rules seem to keep changing as the government changes. Therefore, it’s important to do your research. You have to choose the minimum coverage that your unique situation requires, which varies from person to person. Work with a professional to help you make the best choices when it comes to affordable insurance for health care. After all, your health is a life priority.

Home Insurance

If you have a mortgage on your home, then there’s most likely a requirement that you carry homeowner’s insurance. First, find out what’s required of you. With that in mind, here are some additional tips:

Insure what it would cost to rebuild the home, not to rebuy it.
Get rid of risky things that drive up costs, such as trampolines and wood stoves.
Add safety features such as smoke detectors.
Make repairs to reduce costs. In particular, make sure the roof is up to date.
See if you qualify for discounts, for example, if you’re a senior homeowner.

Auto Insurance

When it comes to your car insurance, many factors determine how much you’re going to pay. Your age, driving record, and the type of car that you own all come into play. As you look into affordable health insurance, you might actually determine that your best option is to get rid of your car. You could go car-free entirely, saving money in many ways.

Alternatively, you could trade down for an older model that you can buy outright. If you are still paying your car loan, you might be required to carry full coverage. On the other hand, if you own the car, you can opt for minimum coverage. Furthermore, an older car will likely have cheaper coverage options.

Whether or not you change your vehicle, here are some tips to get the most affordable insurance for your car:

Shop around with an eye towards what small, local insurance providers can offer.
Ask about discounts such as military discounts and good driver discounts.
If you don’t drive often, look into pay-per-mile insurance rates.
Pay a higher deductible in order to reduce the cost of monthly payments.

Additional Tips for Choosing the Most Affordable Insurance

In summary, if you want affordable insurance, then you first have to determine what you minimally need and what budget is affordable for you. Then you need to shop around to get the best deal for each type of insurance that you require, making sure to stay within your budget. Here are some additional tips for choosing the most affordable insurance:

Maintain a good credit score and a good insurance score.
Review your rates annually, but be aware that staying with the same company over time can save money.
Make the most of every possible discount available to you. A few include AARP and AAA memberships.
Compare government insurance with private insurance.
Don’t be afraid to go with a smaller local company if they can meet your needs.
Select a higher deductible when that makes sense for you.
Make all payments on time. See if you get a discount for paying a full year in advance.
Know your goals and requirements. Make sure your choices are in line with them.

Finally, ask your insurance provider what discounts they offer. For example, you might get discounts for making safety updates to your home and car or even for switching to online-only bill statements. If you don’t know about these discounts, then you won’t take advantage of them as you search for affordable insurance.

Read More:

21 Reasons Dave Ramsey Sucks at Giving Credit Score Advice

February 17, 2019 By Jeffrey Strain 116 Comments

There are huge disadvantages of having no credit score. I actually know this better than most. After living over ten years in Japan, I came back to the US naively assuming that the credit history I had built over there would transfer back to the US. That wasn’t the case and I found myself having to deal with numerous situations without a credit score. From my personal experience of having to deal with all the negatives that come with having no credit score, as well as knowing a number of others who experienced a similar situation to me when they returned, I can say with conviction that Dave Ramsey gives horrible credit score advice.

For those unfamiliar, Dave Ramsey refers to a credit score as the “I-Love-Debt Score” and makes the statement that “the only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectly — without adding too much debt or paying too much off. In other words, stay in debt for as long as you can.” This is patently false as I currently have no debt whatsoever and yet have a good credit score. Others do too.

He then advises that since you are working to become debt free, once you reach that goal you “…don’t need a credit score, anyway, since you don’t plan on using credit!” While this might sound nice, I can attest that even when you are debt free, a good credit score comes in extremely handy. I would even argue that having one is essential if you want to truly be financially savvy since it can save you a lot of money. If you care about getting the most out of your money, a credit score, whether we like it or not, is important to have.

While you may have heard some of the below arguments before regarding why a credit score can be important, my guess is that some of my arguments you may never have considered before. Below are 21 reasons that it’s important to keep a good credit score even if you’re debt free (and why Dave Ramsey sucks at giving credit score advice).

Wasted Time

This one is huge and one that I rarely see mentioned. I can’t over emphasize this point enough, and I would argue for this reason alone, you want to keep a good credit score. Not having one will mean that you will have to spend a lot more time when it comes to numerous financial situations, including any of the ones mentioned below. If you believe that your time is worth something as I do, wasted time can be a huge cost. Even when you are able to get what you want, you usually have to spend a lot more time explaining why you don’t have a credit score even though you don’t have any debt. I had to spend countless extra hours, many being extremely frustrating, sorting out my financial situation which should have been straight forward and simple all because I had no credit history.

Difficulties Even When Successful

Another problem with having no credit score is that even when you successfully get what you want, it’s much more difficult to get it than if you had a good credit score. Not having a credit score often means going through several layers of management until you can reach someone who will approve what you need. The fact is that for most entry-level employees, if anything isn’t exactly correct, they can’t approve it. That means that people who don’t have credit scores have to work much harder to get things than others that have a good credit score can get without any hassles.

Poor Customer Service

This is another aspect of not having a credit score that is often not mentioned, but the reality is that if you have no credit score, you don’t get treated nearly as well in many situations as you do when you have a good credit. When institutions look up my credit these days, they always seem to come back with a smile and an attitude that they are willing to do anything they can to help me. When I had no credit score, they always came back with concerned looks and a demeanor telling me that it was going to be difficult to help me even if they did the best that they could. The fact is, having a good score means that you will get better treatment from anyone who looks it up.

Lack of Financial Flexibility

Having a good credit score gives you a lot of financial flexibility that isn’t available for those with no credit score. When you have a good credit score, there are many financial institutions that want to work with you. That’s not the case when you have no credit score. Having a quality credit score means that you can get a much better deal when it come to virtually any financial transaction than you could get with no credit score at all. When the unexpected happens and you need to get funds for something that you had never anticipated, you simply have more flexibility in getting them than you do without a score to your name. This include the flexibility of financially helping out others if you choose to do so.

Increase Large Transaction Risks

One of the things that I immediately realized when I was still trying to get a credit card (which I was having trouble doing because I didn’t have a credit score) was the additional risk that came when making large purchases. I have always put the purchase of my airline tickets on credit cards because years ago I had a ticket on an airline that suddenly went bankrupt. Since I had made the purchase with a credit card, the credit card company refunded the amount back to me since I never received the service I had paid for. Had I not paid with a credit card in that instance, I would have simply lost the money. I had to make a number of large purchases upon arriving back in the US and although I was able to make them in other ways, I felt a bit uneasy knowing that if things went wrong, I really had no protection simply due to the lack of a credit rating.

Emergency Cash

Having lived through the Great Hanshin Earthquake (along with a number of smaller natural disasters), I know the importance of having access to emergency funds. When these disasters happen, it’s often impossible to get access to money that you have in your bank account (in the case of the Hanshin Earthquake, it was over 2 weeks before I had access to those funds). It helps to have cash in the days immediately after the disaster when many of the electronic transaction systems are down, but it also helps to have a credit card. During that time, my credit card was a lifesaver in securing a hotel room and other needs when I needed to spend thousands of dollars to get out of the city and find other lodging, but still didn’t have access to my bank accounts. Living in an area of the US where I knew a similar disaster could take place, I found that I needed to keep a lot more cash on hand in case of an emergency. I ended up losing interest on the cash I took out of the bank account plus there was the risk that it might get stolen, or in an emergency I wouldn’t be able to get to where I kept it in my house. Even with a large amount of cash on hand, I still felt my financial preparation was far from adequate had a true emergency happened. That is not the case now that I have good credit and credit cards.

Debit Cards Have Drawbacks

It’s often argued that there really is no need to have credit cards if you have a debit card, but in my experience, there are some definite drawbacks to this argument. I had a friend who had his debit card stolen and his account compromised. While he eventually got all the money that was taken out of his account back, his account ended up being frozen for a few weeks while an investigation took place. During this time, he had no access to any of his banking funds. As mentioned above, in an emergency you might need to access more funds than are in your debit card account with no way to transfer additional funds to it. It also doesn’t cover you with large transactions like an airline ticket refund if an airline goes bankrupt.

Difficulty Getting Security Clearance

One of my friends who came back after living overseas for a number of years landed a great job, but the job required security clearance. The lack of a credit score turned out to be a major stumbling block for him to get his clearance. He eventually did, but it took a lot of time and effort since his lack of one sent up a red flag, and even ended up meaning much more scrutiny in other areas of his life as well to get the clearance. Again, if you consider time and aggravation as a cost, then there is a definite one when you don’t have a score to your name.

Difficulty Getting an Apartment

I remember talking with one apartment manager when returning to the US that told me as soon as I mentioned that I didn’t have a credit score that I wouldn’t get approved for an apartment in his complex. He explained that there was high demand for the apartments so it simply wasn’t worth the risk to management even though I had a good explanation as to why I didn’t have one. While I did eventually find an apartment, the lack of a score caused some type of issue at each complex I looked at, making the entire process much more difficult than it ever should have been, and definitely much more so than if mine had been good.

The Possibility of Divorce

Nobody ever thinks they are going to get divorced when they first get married, but the truth of the matter is a high percentage of couples do. If you go into a divorce without a credit score, this can cause a number of issue both during and after. When people believe that they will never have to take out another loan when they become debt free, they are probably at a point where they never think they will get divorced either. The problem with divorce is that it can be an extremely expensive process and can quickly wipe out any savings and emergency funds that you might have had. Once divorced, financial circumstances can greatly change to where loans you thought you would once never need, might be needed to bridge gaps until you can create a new budget for your new reality. Hiring lawyers, finding a new job, getting a new place to live all become more difficult without a score in an already stressful time.

Difficulty Getting Loan Approval

If there is ever a situation when you need a loan, not having a credit score will make it many times more difficult to secure it than if you have a good credit. The thing is, even if you anticipate never needing to get another loan again, circumstances change and life could place a wrench into your best laid plans. Even if you are debt free at a moment and don’t anticipate ever needing a loan, that can quickly change if you unexpectedly lose a job and are unable to find a new one as quickly as you hoped. Life throws curve balls from time to time and if you are thrown one without a good credit to your name, recovering from it can be a lot more difficult than if you had it.

A More Expensive Mortgage

If you need to take out a mortgage, you will end up paying much more if you don’t have a credit score. The problem is that no credit score is equivalent to a bad credit score to most lending institutions. If they have no records that you can pay off your debts, they assume the worst and assume that you can’t. This means no score is the same as having a terrible score in the eyes of lending institutions. While you still may be able to secure a loan (and you may not), you will end up having to pay a larger interest rate to do it which can mean paying tens of thousands of dollars more over the lifetime of the loan.

Difficulty Securing Utility Services

When I needed to get utilities in my name after returning from Japan, I couldn’t just call and have them turned on like I expected. Several required me to pay a deposit in order to put the service in my name since I had no credit history of paying these bills in the past. It makes for an extra step in the process, it takes more time to get the service and you lose the interest that you could have earned from the money that you must give as a deposit.

Trouble Getting a Cell Phone Contract

Upon my return to the US, I was actually denied the first cell phone contract I tried to get due to no credit history. I was eventually able to secure one, but I ended up having to pay a deposit to do so much like I had to when it came to the utilities. While the deposit wasn’t a huge amount, I did lose the interest that I could have been earning on it. Far more frustrating was the extra time and headaches (and the costs associated with them) caused by not having a score that would have never come into play if I had a good one.

Possible Negative Effect on Job Opportunities

One thing that many people fail to realize is that as many as 70% of companies will check the credit history of a candidate for a job before they hire. With so many qualified people in the job market these days, it’s often the little things that end up determining who gets hired. A lack of a credit score compared with someone with the same qualifications that has a stellar one could be the difference in who gets the job. Similar small details can make the difference on promotions within certain corporations, especially for sensitive positions. If you lose a job or are passed over a promotion, that can mean thousands of dollars in lost income.

Pay More for a Car

There have been a number of surveys over the years that show that some car dealers have a tiered system on how much they mark-up a car depending on the credit score of the individual buying the car. Those who are deemed the least credit worthy, which would include those with no credit score, can be charged as much as 3.5% more for a car than those with top scores. This has nothing to do with the interest rate on a car loan, but the actual amount that is charged for the car. That means that even if you don’t need a car loan, you can potentially end up paying more for a car when you don’t have a score.

Another way that lack of a score can cost you more, as pointed out by Anni in the comments, is that you can often get dealer discounts by financing a car worth thousands of dollars, then pay off the car loan soon after. I know that this situation arises because I did it once for one of my car purchases. I had the cash to purchase the car in full, but there was a deal to save $2000 through the credit section of the car maker if I agreed to finance the car, so it made good financial sense to do so. I took the $2000 discount and the loan, but as soon as the $2000 credit came through, I paid off the entire loan. The key here is that to take advantage of these car maker financing discounts, you have to qualify for them, and if you don’t have a credit score, you’re not likely to do so.

A More Expensive Car Loan

If you do need to take out a car loan, you will end up paying thousands of dollars more in interest charges with no score than you would with a good one. Interest rates for those with good credit are usually in the low single digits, while those without will pay double-digit interest rates on the exact same loan. While you may not think you will ever need to take out a loan again, something that you never expected like a divorce or a lost job could result in you needing to get one.

More Expensive Insurance

The insurance industry is in the business of assessing risk. They look at a wide variety of things to determine the risks of the individuals and families that use their services. One of the things that they look at is your credit score. Having one that is poor makes you a higher risk than an individual who has one that is high. The problem is that having no score doesn’t allow them to determine whether you are a higher or lower risk, so they will always make the assumption that you are a higher risk when the risk is unknown. What that all means is that if you have no score, you will end up paying more for life insurance, car insurance and homeowners insurance than you would if you hade a good score.

Difficulty Getting a Credit Card

One of the things that Dave Ramsey says is that you don’t want credit cards, but this is only true if you can’t control yourself. The truth is that credit cards are only a disadvantage if you don’t pay them off fully each month. Once you are out of debt and have built an emergency fund so that there is no need to put expenses on your credit card that you can’t pay off in full each month, credit cards are actually a financially savvy tool to use. They give you insurance in many transactions you may not have otherwise, they may provide additional insurance for you with certain purchases such as airline tickets and car rentals, and they can even pay you cash back for purchases you would otherwise make. The problem is that if you ever find yourself in a situation where you need a credit card, but you don’t have a score, it can be extremely difficult to get one. Even when you do, you can expect to have a very low credit limit that will take years to grow to where it can be useful for larger purchases. I know because the only credit card I could qualify for when I returned was with a bank that I had been with for over 20 years, and they still would only give me one with a $500 limit to start.

Difficulty Getting School Loans

If you ever decide to go back to school, having no score can make it difficult to secure loans. Again, many assume that they will never need to go to school again, but further education might be the only way to secure a job if you happened to lose the one you have. If you can’t qualify for student loans from your school or federally funded loans to pay for your education, you will have to turn to private loans which have interest rates much higher and can end up costing you thousands of dollar more for the same education.

Difficulty Getting Business Loans

If at any time you decide that you would like to start a business, not having a score can hurt you financially in trying to secure a loan for the business. When banks give business loans to individuals, they want to see that they have a track record of paying out the other loans that they have taken out. With no score to your name, that record doesn’t exist and you become a greater risk to give a business loan to. With no score, you might not be able to qualify for one at all without putting up a large amount of collateral, and even if you do, you are likely to pay a higher interest rate on the loan than if you had good credit. You will definitely have a much more difficult time securing the loan which can mean many more hours (if not days) trying to get the money you need.

Dave Ramsey gives lousy credit score advice because he fails to take into account that life can get messy in ways that we never anticipate. In addition, he doesn’t take into account the costs associated with the extra time and aggravations that can come with not having a score. If it were true that you needed to always remain in debt in order to have a good credit score as he states, I might give him some slack, but the fact is that this statement is patently false, I know because I’m currently debt free with a good score. While I’m certainly not saying that all the advice that he gives is bad, the advice he gives regarding credit scores sucks.

Finally, if you don’t like my analysis and want to see what Dave Ramsey has to say, think about getting a copy of his book The Total Money Makeover. The book is an combination of educational handbook, inspirational coaching guide and self study manual. It has sold something like 5 million copies – so its a good example of his best work.