Credit Score Pitfalls

Cash Buyers "Off the (Credit Score) Radar"

I can't say I've run into any as clients, but an article in today's Wall Street Journal makes the counter-intuitive point that simply not using credit -- as opposed to using it irresponsibly -- can lower your credit scores ("Credit Score Pitfalls of the Wealthy").

As the article notes, Fair Isaac, the company that devises the credit-scoring formula (hence the acronym, "FICO scores"), weights not just how responsibly people use credit, but how much credit they have. Basically, the more, the better (an exception: having lots of unexercised lines of credit is a demerit).

So, someone who's quite wealthy but credit-averse -- presumably, they pay cash for everything -- would likely have only a good, not great credit score.

I actually encountered a prospective client years ago who didn't have a credit score. That's not unusual for someone college-age, but this woman was in her late 40's.

It turns out that she had never had a credit card, borrowed to buy anything, or even paid a utility bill. As I quickly learned, she had lived in a rural area with immediate family most of her life, and never made any of the purchases "modern consumers" take for granted!

(And yes, it's tough to get a mortgage without a credit score: I put her in touch with several lenders, who all suggested she get a cheap cell phone or make some other nominal purchase to start the credit score process, then try again in six months. Pretty much, that was the last I heard from her!)