Even the Well-To-Do Can’t Afford to Ignore Their Credit Score
It is a myth high net worth individuals don’t need to worry about credit scores
Credit scores are subject to misunderstanding, misrepresentation, and outright myth. For high net worth individuals, perhaps the most dangerous myth is that credit scores don’t apply to them. It is easy to see why someone with a lot of money might feel this way. In general, individuals with a significant net worth will have credit scores high enough never to be troubled by poor credit. Yet there are reasons even the most well-to-do should be conscious of their credit score:
Credit scores are used for more than just loans
Although the primary use of a credit score is to allow lenders a convenient way to evaluate risk, credit scores are reviewed by many other entities. Even if they never need to borrow money, high net worth individuals will still be judged by their credit scores when:
Applying for a New Job. Many employers will check the credit status of new hires. Some human resource software does this automatically.
Seeking Security Clearance. The United States Government uses credit ratings when it scrutinizes individuals for security clearance.
Renting an Apartment. Many landlords run a credit check before leasing apartments or renting other space.
Buying Insurance. Insurance companies commonly use credit scores to calculate premiums.
Subscribing to internet, TV, or cell phone services. Communications companies routinely check your credit before setting up service.
Gambling. When extending inhouse credit, most casinos will check your credit score along with verifying the amount in your checking account.
In general, the lower the credit score, the higher the costs and being wealthy does not guarantee a high score.
Wealth and income are not used to calculate credit scores
Credit bureaus automatically collect data from creditors who do business with them. In the process, the bureaus cast a pretty broad net. Together Equifax, Experian, and Transunion collectively make over 36 billion updates with data from over 18,000 sources. The data they collect comes from auto finance companies, banks, credit card issuers, and retailers. Credit bureaus also gather information from public records, such as bankruptcies, tax liens, and court judgments, to fill out individual profiles.
But the bureaus don’t capture everything. Except for the new and controversial UltraFico, credit ratings do not consider income or assets. Wealthy people can have terrible credit scores. As an example, someone with no credit cards is viewed as a higher risk than someone who has many, no matter what his or her net worth.
Credit reporting is a $4 billion business in the United States. The credit industry is continuously experimenting and entering new markets. In the current climate of digital innovation, credit scores are likely to become even more entrenched into the fabric of modern existence. Like death and taxes, credit scores have become an unavoidable fact of life.
If you have never seen your credit report, the place to start is to check them on the internet or to order a printed copy by phone. Federal law entitles you to one free copy every year from Equifax, Experian, and Transunion, so even if you have seen your credit report before it is still a good idea to check it every year. To verify your identity, you will need to provide your name, address, social security number, and date of birth. These free credit reports can be ordered online at annualcreditreport.com or by calling 1-877-322-8228.
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