By MIKE GOLDSTEIN
Credit scores have a bit of mystery behind them, with each credit bureau mixing its own secret sauce. Is your annual income or personal wealth an ingredient in this special mixture? If you're less than affluent, will you forever be missing that extra touch? If you're wealthy, will that add the richness necessary to a great credit score?
No, rich people do not necessarily have better scores.
Well, here's your first answer: income is not an ingredient in the secret sauce of your credit score. The reason behind this is simple -- credit bureaus don't collect or have reliable information regarding your income. Credit reports are populated by information taken from lenders and while lenders will often ask you to self-report your income, self-reported information is far from reliable. Unless credit bureaus were able to regularly access your pay stubs (they can't), they won't be able to report on your income level.
Since credit bureaus don't report on assets like savings and investment accounts either, it's easy to see why being wealthy won't necessarily mean that you'll have a great credit score.
But the wealthy do have certain advantages.
Of course, it's not quite that simple. The moneyed do have some significant advantages.
Many of the factors behind your credit score measure whether or not you are desperate for extra cash. Maxing out your credit cards, applying for numerous loans at one time or going into large amounts of debt will all lower your score and make you less attractive to lenders. The wealthy are at an obvious advantage here, and they are less likely to truly be in need of the credit they're applying for. This means that they can more comfortably keep their credit card utilization at a healthier level, they don't need to scramble and apply for many loans at once, and they will never have to go into debt to pay off things like tuition fees or medical expenses.
As I mentioned earlier, most institutions will ask you to report your own income (often using pay stubs) as part of your application process. Your income is used to calculate your debt to income ratio. The less money you have tied up in debt compared to your overall wealth, the more attractive you are to lenders. This factor, considered in addition to your credit score, will often allow more wealthy applicants to land better deals and help them improve their credit health with relative ease.
It's not hopeless, though.
Everything that you need to build a great credit score is within your reach, regardless of your tax bracket. If you're a regular reader of ours, you know this already. Credit Karma has often expounded on simple and practical ways to build your credit health. You don't need an impressive income to pay your cards back on time, check your report for errors or use your cards wisely.
Relatedly, being wealthy will never be a golden ticket to a high score. People who are habitually late on payments or who don't have enough open accounts generally see their scores suffer, even if they are rich people. The wealthy even encounter some potential pitfalls of their own, including using their credit cards too rarely or not using credit at all.
So what's the answer?
Since credit bureaus don't report on income or assets, we don't know if the wealthy have higher credit scores than the rest of the population. Based on the practical advantages many of the wealthy enjoy, I'd suggest that, in general, they probably do. However, don't let that discourage you. None of the factors that make up a credit score rely on annual income figures or personal wealth, and excellent credit health is entirely within your reach, even without a six figure income. So don't worry, you're not missing any of the ingredients in that special sauce after all.
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