3 things that can matter more to your money than your credit score, according to a financial planner

Brandon Renfro, RICP, CFP.

Brandon Renfro, RICP, CFP.
Courtesy of Brandon Renfro

Having a good or excellent credit score is basically a prerequisite for housing, for securing promotional financing on major life purchases, and for redeeming major perks like airline points, rental car insurance, and trip cancellation insurance.

What could be more important? According to certified financial planner Brandon Renfro, there are indicators of financial health that are, at critical times, much more important than a credit score.

“A better indication of financial health than a credit score,” he says, “is your ability to weather a setback.”

Renfro, who helps people come up with effective retirement withdrawal strategies and build intelligent investment portfolios, says there are three important factors that indicate your long-term financial health just as well, or better, than a credit score:

1. Ability to navigate a job loss

“A high credit score will do little to help you in the case of a job loss,” says Renfro.

It’s unfortunate, but it’s true. If you lose your job, says Renfro, a high credit score becomes irrelevant if you’re cut off from your cash flow and there’s nothing in the bank. Without an income, even applying for a personal loan to hold you over can be extremely difficult.

2. Ability to retire on your terms

Can you retire when you want and have the lifestyle you deserve? If your health changes and you need to retire early, could you?

“Even if you plan to work for several more years, you may find yourself in a situation where you need to retire due to health,” says Renfro. Again, a good credit score won’t do as much for you in that situation.

3. Ability to change jobs or take time off

What if your company is folding and you want to get out now? What if a family member gets sick? What if you decide to make a career change? What if you want to focus full-time on your side hustle and leave your day job behind? The flexibility to change your employment situation requires liquid savings just as much – if not more – than it requires credit.

You’ll need two kinds of savings to make it work

To be able to navigate a job loss, retire on your terms, and change jobs as you like, you need savings. Specifically, you need an emergency fund holding cash to cover six to nine months’ worth of expenses, and retirement savings that are continually growing during your career.

Admittedly, that’s a lot of money. To make saving less painful, experts recommend automating your contributions to various savings accounts, whether that’s cash each month into a high-yield savings account for your emergency fund or an automatic withdrawal from your paycheck to get your employer’s 401(k) match. Every six months (or whatever schedule best suits you) increase your contribution level, and your balance will grow over time to satisfy all three of these markers of financial health.

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