Smart Money Podcast: Longevity Literacy, and How Debt Impacts Credit Scores

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Written by Sean Pyles
Senior Writer
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Edited by Kathy Hinson
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Co-written by Liz Weston, CFP®
Senior Writer

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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode: Improve your longevity literacy so you don’t retire too early (or late), then learn how debt affects your credit score.

This Week in Your Money: Sean Pyles and Liz Weston delve into the significant yet often overlooked concept of longevity literacy. They discuss how a common misunderstanding about life expectancy can lead to retirement planning missteps, and they share a life expectancy calculator for estimating your life expectancy.

Today’s Money Question: Sean and Liz debunk common credit score myths, such as the idea that you can’t have good credit scores without debt.

They explain how different types of credit accounts, like revolving accounts and installment loans, can affect your credit score, as well as the importance of managing credit card use.

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Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Sean Pyles: Hey, Liz, I've got a weird question for you.

Liz Weston: OK.

Sean Pyles: Do you consider yourself a morbid person? We spend a lot of time talking about retirement, but how much do you dwell on when retirement will end?

Liz Weston: Well, I'm going to quote author Haruki Murakami, who wrote in the book “Norwegian Wood” that death is not the opposite of life but an innate part of life. And morbid or not, it's an innate part of retirement planning, too. To figure out how much you need to save for retirement, you need to have at least an estimate of how long you're likely to live in retirement.

Sean Pyles: I'm going to take that as a yes.

Liz Weston: Fine.

Sean Pyles: Welcome to NerdWallet's Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston.

Listeners, take a second and think what's the money question you most need help with? Whether you're trying to buy a car or just want to shake a bad money habit, send your questions our way.

Sean Pyles: You can leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected].

Liz Weston: In this episode, Sean and I answer a listener's question about what debt does to your credit score. But first, we're going to talk to you about why you're probably going to live longer than you think and what that means for your finances.

Sean Pyles: This conversation is inspired by a column that Liz recently wrote, hence my question at the top. A lot of folks might have a hard time imagining themselves aging, but thinking about what your later years are going to look like and just how many you'll have can help you plan for them right now.

Liz, your column is titled “You'll Probably Live Longer Than You Think,” and if we're not going to croak tomorrow, what should people know about life expectancy?

Liz Weston: Well, first, you probably are not going to croak tomorrow or anytime soon because most people will make it to retirement age, and once they're there, they're likely to live another 20 or so years. An increasing number are going to make it to their 90s.

Right now, for a couple aged 65, there's a 50% chance that at least one will still be alive at age 92. This is all according to the Society of Actuaries, who are the people who crunch all the numbers and the data to evaluate the likelihood of future events.

Sean Pyles: Your column talks about longevity literacy and illiteracy. That's a term that I hadn't heard before reading this piece. Can you describe what that is and why it's important for people to know about?

Liz Weston: Yeah. Well, you've heard of financial literacy, which is basically understanding how money works. Longevity literacy is understanding how longevity works, basically how long people tend to live. It's super important in retirement planning because if you overestimate your longevity, you could retire too late or scrimp too much. And if you underestimate it, you could retire too soon, spend too much and run short of money.

Sean Pyles: And that's something you really don't want to do in your way later years.

Liz Weston: Exactly. There's so many people who start out OK. They retire and they think they got it handled. But by the time they get to their late 70s and their 80s, they're really struggling.

Sean Pyles: Right, and that can be, what, 10, 15 years into retirement, then you realize, oh, you actually do not have as much money left as you thought.

Liz Weston: Yeah, exactly. And that's what’s called longevity risk. The longer you live, the more likely it is you're going to run through your savings and have to rely on things like Social Security.

Sean Pyles: Something that you wrote in your article as well is that longevity is persistent, and I found that a great way to frame it. It basically is the idea that the longer you live, the longer you will continue to live statistically, right?

Liz Weston: Yes, exactly. And that's really important to get a handle on because most of the figures we see that deal with life expectancy measure it from birth. In the United States right now, the average life expectancy is 76 years. Again, from birth. That's pretty much useless when it comes to retirement planning. A life expectancy from birth includes infant mortality. And if you're listening to this podcast, then that is not a factor in your own life expectancy.

Sean Pyles: We may have some very young listeners. Who knows?

Liz Weston: Well, that's true, but probably not young enough to worry about that.

Anyway, so the figure you want to look for is life expectancy at 60 or 65. The more education and income you have, the more likely you are to live even longer than average. I would suggest that people consider using a calculator that's designed to take their health, lifestyle, genetics and other factors into account so they can get a more personalized estimate.

One I found that has a lot of questions is, but I really found it worthwhile to take the time to narrow in on that idea of what your own life expectancy is likely to be.

Sean Pyles: Because I'm also a morbid person, I took that survey ahead of this recording.

Liz Weston: Oh, what did it say?

Sean Pyles: It said that I'm estimated to live until 93, which is not quite 100, but I'll see if I can change a few things here or there to get to that milestone.

Liz Weston: Well, right now, about 1 in 3 men who are in their mid-50s are expected to live into their 90s, and 1 in 2 females in their mid-50s. They expect that life expectancy is going to continue to get longer. We've had this blip lately with COVID, with the opioid addictions, things like that, that’s dampened life expectancy, but there's a really good shot for people your age and younger to make it to 100. And that's a long time to live in retirement, by the way.

Sean Pyles: It really is. I want to go back to the idea of longevity risk that you mentioned earlier, the chance that people will outlive their savings. It's really scary to think about that happening, especially for folks who are in advanced age. Can you talk about how people can mitigate that risk?

Liz Weston: Well, the single most powerful thing you can do is to delay the start of Social Security as long as you possibly can because that permanently increases your check, and your Social Security check may be all you have if you run through those savings. You're going to want it to be as big as possible. And then again, Social Security is inflation adjusted, so the bigger the check, the bigger the inflation adjustments. That all helps down the road. Way too many people start Social Security too early, and they wind up struggling. It's really important to learn about this and to put it off as long as you can.

Sean Pyles: This is also a good opportunity to remind people, especially people in my generation, that in all likelihood we will have Social Security benefits when the time comes.

Liz Weston: We've said it before, we're going to say it again. Even if Congress doesn't fix the Social Security shortfall, the system will still take in enough taxes to pay about 80% of promised benefits. And 80% is not zero, speaking of financial literacy.

Sean Pyles: Right. And also if we badger our elected officials enough, hopefully they will be able to fix the system and we won't have to rely on that 80%.

Liz Weston: I'm really counting on the fact that nobody's going to want to cut Grandma's benefits. Grandma will come after you if you do that. I think that alone is going to be a pretty good motivation for politicians to finally get this taken care of.

Sean Pyles: Yeah, let's hope so. All right, well, thanks for talking about your column, Liz. And with that, let's get onto this episode's money question segment. This episode's money question comes from a listener's email as read by our audio mixing pro Kaely Monahan.

Kaely Monahan: Hi, Nerds. Can you explain the correlation with credit cards and credit scores when you don't have any debt? I've worked hard to pay off all my debts, car, student loans, credit cards, and it seems like as soon as all my debts went to zero, my credit score tanked. It feels like I'm being punished for being debt-free. I'm looking to only spend by using cash envelopes, but I'm scared what it will do to my credit score. Help!

Liz Weston: In this episode, Sean and I are taking on this listener's question all on our own. I wrote a book about credit scoring, and Sean's written about credit and debt.

Sean Pyles: And we're both really, really eager to dispel this myth that you can't have good credit scores without debt, because it's not true.

Liz Weston: Yes. Well, I would really like to know what our listener means by tanked when they say their credit score tanked. If it fell from the 800s, say, to the high 700s, that may feel like a really big deal to them, but it's really not. You're still getting the best rates and terms if you need to borrow, plus lower insurance premiums and all that other good stuff.

Sean Pyles: If the score has actually tanked like from the 700s or 800s to the 600s or worse, then that could be really concerning. If our listener not only paid off those credit cards but closed them, then their scores probably did tank. Big drops in your scores could also indicate identity theft going on or an account went to collections, something serious like that.

Liz Weston: Well, let's start with some of the basics because credit scoring can feel a little complicated. First, credit scores are three-digit numbers. They're created from your credit reports, and they're meant to indicate the risk that you won't pay what you owe. They were created for lenders, not for us. That's one of the reasons they're so complicated.

You don't have one credit score; you have many, and they change all the time based on the information in your credit reports changing. Most credit scores are on a scale from 300 to 850. The higher the score, the less likely you're seen as a default risk or that you won't pay your bills.

Sean Pyles: We should also say that your credit score is not a reflection of your worth as a person. People can do everything "right," make all their payments on time for years, but then a crisis hits and maybe they miss a payment and their scores really can tank. And that sucks because it doesn't mean that you're a bad person, but there are ways to recover, and that's the good news.

Liz Weston: Yes.

Sean Pyles: Anyway, to get the very best credit scores like those in the 800s, you typically need to have both revolving accounts and installment loans. Revolving accounts are lines of credit that you can borrow against and pay back, like credit cards. Installment loans are things like mortgages or auto loans that typically have set payments so you can pay down the loan over time.

If you pay off all your installment loans, you may not have the highest credit scores, but you're still considered to be a good credit risk if your scores are in the 700s. If you have a 780 credit score, you'll probably have the same chances of getting approved for that fancy travel credit card as someone whose score is 830.

Liz Weston: Exactly. The reason your scores might drop if you pay off your last installment loan is that you no longer have that mix of credit types that the scores like to see. The scoring formulas have less information to work with, so they won't give you the absolutely highest scores. But as Sean just said, you really don't need them.

Now, closing your last installment loan is not a huge deal unless you also closed all your credit cards, and I'm worried that that's what happened with this listener. You need to have and use credit just to generate credit scores. If you stop using those cards and close them, the credit scoring formulas don't have enough information to work with.

Sean Pyles: You can avoid that just by having credit cards and using them responsibly. Do things like make regular charges so the issuer doesn't close the card for nonuse. That will likely only happen after a year minimum, maybe several years. I have a credit card that I haven't used in half a decade.

Liz Weston: Oh, wow!

Sean Pyles: It's still open. I did get a piece of mail about six months ago, and they said they were thinking about closing it. I just charged one thing to that credit card, and now it's still open.

But anyway, another good practice for folks when using credit is to only use a fraction of your available credit. Under 30% of your credit limit is good, under 20% is better, and under 10% is best.

Also, it's good hygiene to pay off all of your balances in full. That can help you avoid paying credit card interest, too. If you keep doing that month after month, you'll probably have a pretty good chance at having a high credit score.

Liz Weston: I was raised by a mom who was really anti-debt. She taught me to pay credit card balances in full every month no matter what, so that's how I've always done it. But I've been lucky enough to have pretty good cash flow through most of my working life.

But I know some people are worried that they can't handle credit cards at all, especially if they've racked up big debts in the past. Sean, maybe you can talk about your experience with credit card debt and how you handle your cards now.

Sean Pyles: I've had credit card debt a couple of times in my life. The first time was in college. I really wanted a new iPhone, and so I took out a credit card. That one that I mentioned earlier that I've had for ages and haven't really used much. My credit limit was $200 and that's how much iPhones cost back then, so that worked out really well for me. It took me a couple years to pay it off. I paid interest on it, but I only charged that one device to the card, and I didn't use it at all after that because I was pretty wary of racking up debt.

And then a few years later, I took out a card with a zero interest promotional period for a big move that I had. At that time, I had a pretty high credit limit on this card. I charged things like the rental car for my move and other things I needed, like new furniture, onto the card. And then I ended up charging some things that I didn't really need, like a couple new pairs of shoes. I got myself a Nintendo Switch, things where I was like, “Yeah, I can pay this off over time!”

And then suddenly, those 18 months that I had zero interest flew by. And I ended up not paying any interest on this — I did close out my balance before that would've kicked in — but it showed me that I have a propensity to charge things that I don't necessarily need onto a credit card. I could end up in credit card debt, and that made me a little bit scared of myself in a way.

Now, I tend to pay off my credit cards weekly, sometimes even daily if I really want to rein in my spending. What's interesting in terms of my credit score is that I can see pretty big swings in my score from week to week as my utilization varies.

Liz Weston: So you can really track what's happening based on how much of a balance that you're keeping on those cards.

Sean Pyles: For example, I recently bought a flight that was $600. I didn't pay it off immediately, in part because I was curious to see what that impact on my utilization would do to my credit score. It went down 5 points. And then I paid off that balance on my credit card and my score went back to where it was. We should say it's hard to pinpoint any one specific thing that is making your score go up or down, but that seems like a pretty clear correlation.

Liz Weston: It might be also helpful to point out that the balances that are showing up on your credit reports and used in your credit scores are typically the balances from your last statement. That's why, Sean, that you pay things off regularly so the balance that's actually reported to the credit bureaus is as low as possible.

Credit bureaus and credit scores really don't know if you pay your balances off in full. That's why there's no advantage to carrying credit card debt. That doesn't help your scores, and it certainly doesn't help your wallet.

Sean Pyles: That's something that people still believe, which is mind-boggling to me. It goes to show that there's so much misinformation in the personal finance space. People do believe that they have to carry debt, have a good credit score, especially credit card debt, and it's just not true. And given how expensive credit card debt can be, I really hope that folks can dispel that myth. Tell your friends and your family, folks don't have to carry credit card debt to have a good credit score.

Liz Weston: The book that I wrote on credit scoring has gone through five editions, and the only chapter that hasn't had to be significantly rewritten is the one on credit scoring myths. Those are incredibly prevalent, the one that you have to have debt to have good scores, yada yada. Those stay there. The other one is that checking your own credit will hurt your scores, which it won't. There's a lot of them out there.

I think it's worth figuring out a system that works for you. That's because credit scoring really permeates our lives right now. You may think you never want to borrow money again, especially if you just paid off a huge amount of debt, but credit scores and credit information are used in a lot of different ways. Most auto and home insurers, for example, use credit information to help set premiums. Sometimes your credit situation can matter more than your driving record when it comes to auto insurance, which is just crazy. Landlords use credit and credit scores to decide who gets to rent an apartment. Cell phone companies use the information to determine who gets the best promotions, the best rates. Utilities use credit information to decide how big a deposit you have to make. It goes on and on.

Sean Pyles: Our listener also mentioned the cash envelope method, which is also known as cash stuffing. This started as an old-school method of budgeting where you used actual envelopes, paper envelopes, and actual cold hard paper cash, and you would write each specific expense on an envelope and then put in the money you plan to spend on that category. For example, when the grocery envelope is empty, you stop buying groceries.

Liz Weston: These days you can use budgeting apps or even a spreadsheet to do pretty much the same thing. Trying to use actual cash can be a little risky. You could always lose the money or have it stolen, and it can be severely inconvenient if you're trying to pay bills that way.

Sean Pyles: And even if you do want to go with a retro route and have cash envelopes, maybe think about setting up a small charge on your credit cards with automatic payment just so that you can continue to show some use and prevent the issuer from shutting down the cards.

Liz Weston: Yeah, because again, that hurts your credit scores. You don't want that to happen.

Sean Pyles: One last thing I want to touch on is how our listener felt like they were being punished for doing everything right, and that unfortunately is not an uncommon experience. People can make all these on-time payments, they can pay off an auto loan or something, and then when they see their credit scores go down after that, it can feel like they just can't win. It's really unfortunate, but that's the way the credit scoring models are set up. We are kind of the product in this situation.

Even if your score goes down, that isn't necessarily for you; it's for other lenders. It's harsh and it doesn't feel good to be in the system that we didn't ask to be a part of, but the best we can do at the end of the day is play by the rules as we know them and work to make our scores as good as possible.

Liz Weston: Knowledge is power. The better you understand the credit scoring system and the more you know that it was created for lenders and not for us, I think the more you can start to move the needle on your credit scores so you do get the best rates and terms, the best insurance premiums, the best deals. You can really save money if you understand how the system works and deploy that information.

Sean Pyles: It can also maybe help you separate the emotional impact of a credit score drop because it can be painful when you realize your credit score isn't where you want it to be, and that does mean you don't get the travel credit card that you want. Or worst-case scenario, maybe you don't get the apartment that you really want to live in. But you can take steps to improve it. There are all sorts of tools like credit-builder loans and secured credit cards that are designed to help you improve your credit score.

I think that about covers it. Let's get onto our takeaway tips. Liz, will you please start us off.

Liz Weston: With pleasure. First, you don't need to be in debt to have good scores. You can achieve and maintain good scores just by using credit cards and paying them off in full.

Sean Pyles: Next, closing accounts can hurt your scores. If you close all of your credit accounts, eventually your credit reports won't even be able to generate scores.

Liz Weston: Finally, good credit matters. Even if you're not planning to borrow money, good scores can help you save money on insurance, cell phone plans and utilities.

Sean Pyles: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected].

Visit for more info on this episode, and remember to follow, rate and review us wherever you're getting this podcast.

Liz Weston: Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. This episode was produced by Sean Pyles and myself. Kaely Monahan mixed our audio, and a big thank-you to the NerdWallet copy desk for all their help.

Sean Pyles: And with that said, until next time, turn to the Nerds!