It is crucial to have a good credit score today as the original intent of credit scoring has been manipulated by the businesses which create them to such an extent that credit scores have become an extremely lucrative industry. So lucrative in fact that the very bureaus which compile credit reports are in direct competition with their main customer, the Fair Isaacs Corporation, which releases the FICO score, to produce their own Vantage credit score. Smart consumers who keep up to date with their FICO score, due to its influence on so many aspects of their life, should also pay attention to developments with the Vantage score.
The original intent of credit scoring is to indicate a consumers risk as a borrower. Income is not a valid indicator of a person’s ability to repay, but a person’s historical pattern of payments is. How long someone has used credit and how responsibly they deal with it is used as an assessment of future risk. Does a high credit score reflect if you are dishonest or a bad driver? Of course not, but it is used to allow companies to make such an assessment.
Your credit score now affects your ability to obtain credit in the form of credit cards, loans and mortgages. It affects the rate of interest which you are charged on your credit cards, loans and mortgage. It determines if you need to have a co-signer vouch for you. It determines the premiums you pay on your auto insurance and home insurance. It determines if you can rent a home, or borrow to start a new business. It can affect your employment prospects. It gives you the opportunity to have preferential interest rates or it can leave you in the hands of sub prime lenders.
Credit scoring is an industry which relies on companies paying for the scores it compiles. If feeds the business of credit scoring tracking models which consumers purchase to ensure their credit score is accurate. It feeds the businesses which make money promising to clean up consumer credit scores.
The way in which scores are compiled protects the lending institutions interests more than consumer interests, as of course the banks are major customers of the credit scoring industry. They pay for new developments in technology which the credit scoring industry markets as necessary to keep pace with their newest and most effective scoring techniques. The credit industry lobbies against Bills to prevent credit checks being used for none essential job applicants.
At the bluntest level credit scoring has now created a consumer trap which means not utilizing credit penalises consumers, just as not using it well does. It means that consumers need to use credit in a certain way which is not always the smartest way. It means you should be very aware of your three digit number and play the game or the pay the price.