In our economic age loans and credit are becoming more and more difficult to obtain and consumers are becoming more and more aware of their credit ratings. Depending on their credit usage and payment patterns, these consumers may see their credit ratings improve or get worse and, needless to say, credit becomes easier or harder for them to get – depending on how they feel. .
This is true regardless of the consumer’s credit income in question. If you ask the question in the title of this article, the answer is simple: there is yes, there is that no. The truth is that credit rating is important to everyone, regardless of income or assets.
The rich do not always have healthy lending habits and even very wealthy individuals can have very bad credit ratings. Your credit report simply does not take your income or your savings into consideration.
What is your credit report?
Your credit rating is a measure of how you manage your finances. Overdue accounts and late payments will result in a weakening of your borrowing power while regular payments, before maturity dates and a low debt-to-credit ratio available will have a positive effect on your rating. Even the rich manage to miss their payments.
There are also other factors that affect your credit rating: the total amount you owe and the age of your credit report, for example. If you have exorbitant debt and a very young credit history, this is a very bad sign for your borrowing power.
The creditors need to know that you are not a disproportionate risk: that is, if they lend you money, they want to be reassured that they will regain their capital and their interest without having to face a series of late payments, or have to send overdue statements, send you to a collection agency or, in the worst case, take you to court. They want to avoid the cost and trouble of a bad payer.
That’s why lenders make credit inquiries: information about your payment and debt history allows them to determine if they have a good chance to review the money they lend to you and, if so, if it will be worth it. If you fail this survey, your income is for nothing, they will not lend you a penny.
A few words about the use of debt
Another factor that affects your credit report is your debt use. You may think it sounds like jargon, but in reality it’s a very simple concept and it’s important for you, as a consumer of credit, that you understand what this concept means. Debt use is simply the proportion of your available credit that you used.
If, for example, your credit card is still at its limit, your debt / credit usage is considered very high. It is not necessary, either, that you have reached your limit to affect your credit rating. The average consumer should try to achieve a debt utilization rate of about 30%. If it is possible to reduce this rate even more, to 10% for example, the net effect on the credit rating can only be positive. It is important to note that if the debt utilization rate rises above the 50% threshold, a credit rating could see a decrease of up to 100 points.
There are rich people who are not so rich
We have all heard that so-and-so has mortgaged the whole life. In many cases, and especially among the rich, it is often true! Some who seem rich finance their life rhythms with an insurmountable debt. They do everything to continue to live the luxury and it always ends up catching them. If you have been responsible for your debts and payments, there is a good chance that these “rich” have a much lower credit report than yours.
The rich too make mistakes in their financial lives
The rich often make important mistakes in their credit habits, and of course, the more they miss, the worse the effect at the credit bureau. The common mistakes of these individuals are these:
- They do not pay attention to their credit usage rate : using your credit cards for all your purchases is certainly a practice that can help account management, but if the limit is reached every month, this may have a harmful effect on your credit report, even if you are still making your entire payments.
- They simply do not pay attention : the rich often think they are immune to the possibility of having an adverse credit report. They therefore pay less attention to the state of it. Regardless of the state of your finances, you should check your credit report at least twice a year for assured accuracy and to avoid omissions and fraud.
- They often believe that money is all that matters : the rich often believe that their assets are all that is needed to access the credit they seek when it becomes necessary. This is not the case. If they are highly indebted, or if they have a history of late payments, their credit assessments will show that they are an unacceptable risk and their income will be for nothing.
Why do the rich still use credit?
Wealth is not a guarantee against indebtedness. Even a wealthy person certainly has recourse to some form of credit or another: the rich have often reached this status through judicious investment allowing them to increase their income and / or their assets. They often have mortgages and lines of credit to facilitate large transactions. They even use credit cards! Among the different reasons the rich can use credit cards are:
- Rewards programs : Credit cards often offer very rewarding rewards programs. A rich person can afford to make all purchases with their card, accumulate rewards and pay in full by the due date to avoid paying interest.
- Security : Having a large amount of cash in your possession is a significant risk. A credit card allows a rich person to make purchases without worrying about losing a large sum if it is stolen.
- The journey : on a journey the security of its funds becomes even more important for a rich person. Moreover, as the exchange is done automatically at the level of their financial institution, the use of a credit card avoids the difficulties associated with a change of name.
The rich need credit just as much as other consumers and when they are looking to add a new credit product to their portfolios, the credit score is just as important to them as it is to ordinary mortals. Regardless of a person’s assets, if she does not qualify for a loan, she will be refused.
The rich do not necessarily have a better credit rating than the rest of the credit consumers, and in many cases they even have a worse one. Income and assets are not determinative when it comes to credit evaluation: your management of your money and the way you pay your debts are what counts first and foremost.