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 you wanted to loan out money to 1 million people this year. And you had seconds to decide who to loan to and how much to charge to cover the risk that some people won’t pay. A very useful product for you would be the previous payment history and other current debts of those 1 million people.
The credit agencies collect that payment history and debt information and charge companies who want to use it. The companies can then use that data to make their decisions.
Or the companies can pay the agencies to estimate the risk for them. One product that does this is the FICO score. It’s a single number that is a generally useful gauge of risk of repayment.
Our financial institution does both. We pay for FICO scores but we also have our own credit models and internal credit score because the FICO score may or may not be the best indicator for our specific customers.
Credit is also a highly regulated industry. There are many factors that banks and credit agencies *could* use to make their risk models more accurate but can’t, like race or ethnicity for example (I don’t know if those would actually enhance a model, but they are prohibited). They also can’t use “analogues” for race, like your neighborhood + census demographic data to predict your race and then use that for or against you.
If you don’t need to borrow money your credit score won’t come up often. But some jobs will pull your credit because being deep in debt and behind on payments could be a powerful motivator to steal or embezzle money, or sell nuclear secrets to an enemy country. And while credit scores aren’t calculated *specifically* around paying your rent they can be a good estimator of the risk of renting an apartment to you (which is essentially a “loan” to use property that you are paying monthly for).
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