November 7th, 2012

Forget lattes. This financial move can save you over $65,000.

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Forget lattes. This financial move can save you over $65,000.

Ramit Sethi is the New York Times best-selling author of the book I Will Teach You to Be Rich. In this three-part blog series, Ramit will teach us how to optimize our finances. This week: Forget lattes. This financial move can save you over $65,000.

Here’s something that you’ll almost never see on a financial TV show:

Consider 2 people…

One has great credit
One has poor credit

In their 30s, they decide to buy houses of similar prices. How much do you think they pay?

Just because of their credit scores, the person with poor credit will pay over $65,000 more than the person with excellent credit.*

mortgage rates by FICO score


Over $65,000. How many lattes is that worth?

THAT is the power of having a great credit score. Yet most “experts” will either (1) continue yammering on about lattes and clipping coupons, or (2) give worthless, high-level advice like “Improve your credit!”

They do this because lattes and coupons are obvious tips — even though it’s more effective to focus on the 7 big wins in your life.

My goal is to show you what’s beneath the surface — what’s important, but not obvious — to get you these big wins, so you never have to worry about buying your morning latte or ordering appetizers when you eat out.

So today, I’ll show you a step-by-step process to improve your credit health, which can save you tens of thousands of dollars.

How to improve your credit health

You don’t need to become a credit weirdo like me and read 50 books on credit optimization to improve your credit health. You can actually ignore most advice and simply do a few, key things to dramatically improve your credit health.

In fact, there are 3 major steps that will have the biggest impact in improving your credit health. I’m not going to give you 50,000 tips on how to improve your credit health. Instead, I’ll show you 3 that work:

1. Automate your credit card payments

35% of your score reflects your payment history, so even missing 1 payment can cause your credit score to drop 100 points, jack your APR up 30%, add $200+/month to your monthly mortgage payment (insane, I know), and more.

Set up automatic payments using my system. My last post included a video showing you the exact accounts that should pay each other.

Notes on automating your payments:

  • Since 35% of your credit score is based on your payment history, setting up automatic payments is your Big Win here.
  • Instead of doing what most people do (wait until the end of the month, then try to remember to pay…and when they forget, they get slapped with huge penalties), set up automation so you never have to worry about this again.
  • You should ideally be paying off your entire credit card balance each month, but if you can’t, you can still improve your credit health by paying at least the minimums, on time, every month.

And if you do miss a credit card payment, don’t worry. You can use my proven script for getting late fees waived.

2. Pay off your debt

If you have credit card debt, read on…

Too many people decide that since they have debt, they should game the system and play the 0% balance transfer game, switching balances from card to card to save a few percentage points on debt interest. Yeah!! Let’s stick it to the man!

What I’ve found is that they spend more time transferring balances from card to card instead of actually paying their debt off. Honestly, the credit card companies are smarter than you, so if you try to game them, it’s only a matter of time before they destroy you.

Instead, here’s what I want you to do:

  • Go to (my favorite debt calculator) and plug in your numbers
  • You will see EXACTLY how long until you pay off your debt. Stick to the plan via automation (see step 1 of this email)
  • Decide, optionally, to use the negotiation material from chapter 1 of my book (free download) to lower your interest rates.

3. Keep your old accounts open — and set up a $5 monthly charge on them

So many times, when people get motivated to “do something” about their credit cards, the first thing they do is close all the cards they haven’t used in a long time. Sounds logical! Let’s clean out the old cobwebs in our wallet!

In general, however, this is a bad idea: 15% of your credit score reflects the length of your credit history, so if you wipe out old cards, you’re erasing that history.

Plus, you’re also lowering your “credit utilization rate,” which basically means “how much you owe” / “total credit available.”

Bottom line? Even if you don’t use a card, consider putting a small charge — say, $5/month — and automating it each month. In this way, you ensure your card is active and maintains your credit history.

Notes on keeping your accounts open:

  • If you’re applying for a major loan— for a car, home, or education—don’t close any accounts within six months of filing the loan application. You want as much credit as possible when you apply.
  • However, if you know that an open account will entice you to spend, and you want to close your credit card to prevent that, you should do it. You may take a slight hit on your credit score, but over time, it will recover—and that’s better than overspending.

Improving your credit health is one of the top Big Wins you can have in your life. While others are scrounging around and worrying about ordering a medium Diet Coke, you can focus on something that will pay off with tens of thousands of dollars when you make the large purchases that we’ll all make in our lives.

Most people try to do everything (e.g., balance transfers) EXCEPT doing what really matters: Automating, Paying That Damn Debt Off, and Keeping Old Accounts Open.

Stay focused on these 3 steps, use my word-for-word script for getting fees waived, and your credit health will improve over time. It’s not sexy, but it WILL save you tens of thousands of dollars.

Ramit Sethi is the author of the New York Times bestseller, I Will Teach You To Be Rich. To get free word-for-word negotiation scripts and techniques to beat your credit cards, sign up for free at

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The opinions expressed in this post are those of the author himself, and not necessarily Credit Karma or its affiliates.

*The numbers in this chart are based on just one FICO model. It’s important to note that there are many credit score models, not just FICO.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.


  1. Gentlemen:

    My 3 credit scores are 525, 697 and 897. I divorced in 2009, and the only thing on my credit report, where the 525 score is, was an $807 loan from 2008. As I said, I divorced in 2009, with my wife taking her stuff, debts, the auto I gave her and whatever was hers with her, and I was supposed to take all my stuff with me. My wife was and is a terrible money manager, and took out at least 30 or 40 small credit cards in my name without telling me, charged them up, and threw them away. I have had no credit since 1998, and my wife spent over 2.5 million dollars, which I sent to her at $7,000 a month, raising our 3 children. I made good money, but it was never enough for her. She took a 2007 Jeep Liberty in the divorce, which was in my name. She never transferred it out of my name and never made a payment. That was how she operated, leaving me with the debt, while she spent monehy like we were wealthy. I also supported her mother for 15 years, her grandparents for about 6 years, until their deaths, her brother for about 12 years, and she and my children from 1990, until our divorce. I was in a bad car wreck, not my fault, and have been working since 197-, when I was 14. I paid over 300K into Social Security during my 42 years of work and was disabled in the wreck on July 1, 2011. I am still helping my children, to the tune of 20K or better, per year, with the exception of about 14 months of the 18 months following the July 1 accident. I have been on a cash basis since 1998 and had my own house, over 35k in savings and IRA when I married in 1990, a 4 wheel drive, hunting lease and a good job. My ex wife spent everything I had and finished this process by selling all of my stuff after the divorce, including some family heirlooms, like an over 80-year old chest of drawers, together with a fish print worth over %2,500, from a fish I caught in 1986, which she sold for $40. I do not wish to punish her, but I do wish to get all of her stuff off of my credit report. As I have paid cash for almost everything since my bankruptcy in 1998, I have virtually no credit. How do I repair my credit report, which was decimated by my ex-wife, for the most part, without my knowledge? I am 57 and able to walk, although I suffer great pain in my lower back, mostly. I have permanent disability from Title 3 of the SS act, and would really like to fix my credit report as soon as possible. Thanks, Kris Keeble.

    Kris Keeble at 11:31 am on March 8, 2013
  2. Jenna

    Hi Kris,

    Wow, we’re really sorry for everything you’ve been through. We actually go through how to repair credit reports quite frequently on the Credit Karma blog, as we know how important it is to make sure your credit report is free of errors. I’d recommend checking out this post: I think it could really help you. Good luck!

    Jenna at 11:40 am on March 8, 2013

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