Are Credit Scores Still Relevant?

There is no doubt that recent history has turned many people off to debt and credit.  For some that involves holding off on a property or car purchase until you have the entire amount to pay in cash and to others it could mean closing & cutting up your credit cards forever and swearing by a complete cash-only lifestyle.  Some simply choose to drop off the grid for fear of “big brother”.  Whatever the rhyme or reason, this leaves a very big question that begs answering: is good credit still important?

 

The answer to that question isn’t very simple.

 

It’s not simply an issue of credit scores for the sake of obtaining new credit lines alone.  Of course, the desire to obtain financing for an automobile or a home (whether for residence or investment) still exists, but with all that has happened in the credit markets over the past couple of years, lenders are making less money available and the money they are making available are coming at higher requirements.  There are no more stated-income, no more 125% loan-to-value, and no more other risky loans being underwritten today.  Lenders are going back to the old standards: 20% down payments, proof of sufficient income, and most importantly credit scores which show a history of successful ability to manage debt obligations.

 

Additionally, the insurance industry has gotten involved.  Now, in order to get car insurance, healthcare coverage, or a variety of other insurance products, the companies that underwrite these policies are using your credit score as a component in their calculation of how much they are going to charge you.  While it may not be the main component of your payment determination, it will nonetheless play a part.

 

Then you have to consider employers using credit scores as well.  Potential employers, especially in cash-based jobs, retailers with high-ticket items, and jobs handling sensitive information are using credit scores to judge whether candidates are safe or risky future employees.  A bad score may signal a security risk, and therefore an unemployable candidate for such job opportunities.

 

If you are a small business owner, and you want to open a credit card account tor lease equipment, you will have to have your credit run particularly if the business is new and doesn’t have a credit history of its own.  For small business credit card or lines of credit. you will also have to provide a personal guarantee for any debt incurred by the business.  Regardless of what your goals are, having a personal credit history, and a good credit score in the eyes of the lender, are imperative.

 

Whether we like it or not, these are realities and have to be considered when weighing the need for maintaining good credit, or even a having a credit history at all.  I’m not out to explain or justify credit scores.  Instead, I’m just laying the foundation for you to voice your views.  So I leave it up to you to debate:

 

Do you even care about your credit score?  Even if you lead a cash-only lifestyle, are you the least bit concerned?