If I have a lot of money in the bank then does credit score even matter? Generally confused as now I feel it’s getting crazy some of the prerequisites required to rent or finance or put money down.
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Let’s say Alex wants to borrow some money from Bobbie. How does Bobbie know that Alex will pay them back? Well they can’t know for certain, but they can ask around people who’ve loaned money to Alex before, to see if he usually pays them back on time. Bobbie also wants to know what other loans Alex currently has; if they have too many loans, it’s more risky to lend to them.
Rather than ask around, Bobbie can go to one of the three credit score companies (TransUnion, Equifax, and Experian), who have been keeping track of this stuff, and combine it into a number called a “credit score”; The higher the score, the more likely the company thinks Alex.will repay the loan in time.
You might ask, “If to borrow money I need a credit score, and to have a credit score, I need borrow money, how do I even get started?” Good question! Often, a first time lender has a “guarantor”, who promises to pay the debt if the original lendee can’t (or won’t) pay.
Now this system is definitely not perfect; Since you need credit to access credit, this means that poorer families, communities, and neighborhoods often have trouble borrowing money. Believe it or not, there were even MORE problems before credit scores, since lending decisions were made much more subjectively by a loan officer.
Money in the bank doesn’t affect credit score, but it is another factor that banks look at to determine whether to lend to you; A bank feels better knowing that the person they are lending to has enough money to cover the debt, so it might help. (not financial advice)
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