There are a lot of financial advice articles online that place high importance to good credit scores. But these articles where made based on a set of financial rules that works during a booming economy. Now, after a great global recession, several bailouts, the current economy remain fragile and the financial sector needs more business transactions to maintain profit.
So the rules have to change, right? I think so to and this is why credit scores are not that as huge factor when it comes to loans and financing like it did before the 2008 recession. But there are also other factors that explain why credit scores may not matter. And currently there are 5 explanations why this is so.
1. Credit scores are updated daily
Most people think that once they get their credit score it will be the same for the whole year. This is not true. To maintain the accuracy of credit scores, it needs to be reevaluated daily based on the financial decisions of the person every day. This means that your credit score today may not be the same tomorrow.
2. Subjective interpretation of credit scores
Despite the online ads showing good scores, ok scores and bad scores, there is no objective standard on which to rank any credit score. It actually varies from one lending company to another. This means that you can apply for a loan from another lender despite having a credit score that was deemed bad by a previous lending company.
3. Lenders know better
Credit bureaus make a lot of mistakes when it comes to generating credit scores. And the lending companies are now noticing this pattern since it can cost them potential customers. This is why most of them are focusing their background checks on criminal records and other behavioral patterns that will affect your ability to pay back your loan.
4. Focusing on credit scores is financially detrimental
Credit scores’ utility is primarily to those who plan on borrowing money. This means that the person who focuses on improving his or her credit scores also focuses on his or her ability to successfully apply for a loan. This is quite detrimental to ones finances since the focus should be increasing assets and cash flows instead of liabilities such as debt.
5. You may never need one
Before you decide to check your credit score, ask yourself first if you are financially healthy. If the answer is yes then you may not need a credit score at all. You may even do better with your money and make better financial decisions without knowing your credit score. So why waste time on something you do not need?