We hear a lot about how women typically earn less money than men, and how that wage gap puts them at a significant disadvantage. But according to recent data from Experian, one of the three major U.S. credit bureaus, despite earning less money than their male counterparts, women manage to have higher credit scores.
Experian reports that men have an average credit score of 670, while women have an average credit score of 675. Men, on average, also carry 3.7% more debt than women. And though women tend to have more credit cards, they also use them more judiciously, utilizing just 26.2% of their available credit as opposed to 27.3% for men.
Now at first glance, it may seem like women's credit scores aren't surpassing men's by a huge margin, as women currently outrank them by just 5 points. But considering that women earn only $0.79 for every $1.00 men make, the fact that they have better credit means they're doing a pretty good job of managing their money on a whole.
Spend less, save more
While women may be falling behind as far as salaries go, clearly they're doing certain things right. Namely, they're keeping track of their spending, only buying what they can afford, and paying their bills on time. And while men aren't doing a terrible job per se, the fact that their credit isn't better means they're probably spending more than they should.
Imagine a man who brings home $5,000 a month versus a woman who brings home just $3,950. Offhand, you'd think the man would be doing better financially on a whole, right? After all, he has $1,050 more in disposable income to play around with. But if he blows that extra money on gadgets (which many of us do), restaurant meals, and other such frivolous expenses rather than saving it, he'll be no better off come retirement than someone who earns much less but saves more.
Whether you're male or female, and no matter how much you earn, you should aim to save at least 10% of your income for retirement. That's right -- at least 10%, and the more, the better. You can achieve this goal by keeping your housing costs low (ideally, not more than 20% to 30% of your income), cutting back on non-essentials like that gym membership or upgraded cable package, and building up your credit score so that you don't have to pay as much when you do need to borrow.
Better credit can save you money
Imagine you're applying for a $10,000 auto loan but your credit score isn't the best. If you're approved for an 8% loan with a five-year repayment period, by the time you're done, you'll have spent over $2,100 on interest. On the other hand, if you come in with fantastic credit and get approved at just 3%, you'll pay closer to $800 in interest over five years. In our little scenario, your awesome credit score just saved you $1,300.
Now let's take things one step further. Say you invest that $1,300 you just saved in stocks and earn 8% interest, which is actually below the market's average. Over the course of 30 years, you'll turn that $1,300 into $13,000, and you'll have your credit score to thank for that extra savings cushion.
And it's not just low interest rates that can help you build your savings. If you have good credit, you might also save money on annual insurance costs. Some insurance companies consider poor credit a risk factor and upcharge accordingly. Better credit could shave a few hundred dollars off your yearly auto and homeowners insurance premiums, and when that happens, you get an opportunity to bank the difference.
Finally, a great credit score might earn you some extra rewards -- credit card rewards, that is. You know those cards you see advertised offering the best air miles, hotel points, or cash-back incentives? Not everyone gets approved, but the better your credit score, the more likely you are to snag a card with one of those coveted rewards programs. Imagine your credit score gets you upgraded from a card offering 1% cash back on all purchases to one offering 1.5% cash back across the board. If you spend $2,000 per month on your credit card, you'll get $360 back over the course of a year instead of just $240 -- that's free, easy money in your pocket just for having better credit.
Women's salaries may be lagging, but it's good to know that their credit scores aren't suffering in the process. And as long as they use those high credit scores to their advantage, they can not only stay afloat financially, but even surpass their higher-earning peers.
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