Does Credit Score Matter

Lending institutions love to fob off responsibility for their lending decisions on various credit bureaus. A typical letter denying credit consists of one short paragraph stating the denial and then four or five paragraphs encouraging you to harass the credit bureau about it, as if the credit bureau were the one denying your credit. Despite the fact that lending institutions like to hide behind credit bureaus in order to avoid taking responsibility for their own credit decisions, the fact is that your credit score has little impact on whether you succeed in getting credit or not. The usual factors affecting whether you get credit involve the lending institution’s internal dynamics, and a bad credit score is at most a convenient excuse used to conceal the real reason for denying credit.

In some lending institution, loan managers have a quota of how much money they must lend or how many loans they must issue in a given period of time. Since those loan managers are often under heavy pressure to meet their quota, chances are that a poor credit score in your part will be rationalized away by them and you’ll get your credit. Other credit institutions periodically institute lending freezes, and even the highest possible credit score won’t get you credit from them during a freeze. If you have a poor credit score, that will be used as the stated reason for denying you credit, but it won’t be the real reason.

When loans are secured by collateral, such as home or car equity, credit scores have minimal impact on the lending decision. There are often internal rules requiring the loan officer to do a credit check, but if you observe such checks being done, they are usually perfunctory and take about 30 seconds. The best way to take your credit score totally out of the equation when trying to obtain a loan is to already have lots of liquid assets or fixed assets that can easily be liquidated for the full amount of the loan plus any profit that the lender expects to make. Lenders love issuing loans to people who don’t need a loan because they can pay cash on the barrel. This is why so many businesspeople with ten or twenty bankruptcies in their history are able to obtain business loans fairly easily. In some cases your credit score is totally irrelevant. The recent housing crisis in the United States arose because home purchase loans were secured by the government, which is like having the government co-sign your loan and agree to pay it off should you default—which is in fact what happened in tens of thousands of cases across the country.

You’ll hear a lot of lip service being paid to your credit score, but don’t be fooled. Your credit score and credit report information in general are just a smokescreen used to conceal how lending practices are really conducted.