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Blog Home > Credit 101 > Credit Score > Do Rich People Have Better Credit Than You?
Christine DiGangi
Christine DiGangi is the former Deputy Managing Editor - Engageme... Read More
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Your credit score isn’t about how much money you have. It’s about how you manage it.
So in answer to this question: No, rich people do not necessarily have better credit than you do. Having a lot of money can be helpful, but it is in no way the secret to a high credit score.
The Income-Credit Score Relationship
You can be a millionaire and have a terrible credit score. In fact, your income has no direct effect on your credit scores, because they’re based on credit reports, which don’t include income information.
The most important aspects of your financial behavior factored into your credit scores are payment history and debt usage. Debt usage refers to how much of your available credit you use, so if you have a $2,000 credit limit, you want to keep your balance below $600, or at a 30% credit utilization rate. The lower that percentage, the better.
Here’s where income could help: Having more cash at hand means you could qualify for a higher credit limit, meaning you have more room to spend before hitting that 30% utilization threshold. Of course, having money might mean you wouldn’t have trouble paying your bills, which is also important.
Looking at the big picture, states with higher median incomes tend to have higher average credit scores. Household income estimates for 2012 from the U.S. Census Bureau and average VantageScores gathered from Experian-Oliver Wyman Market Intelligence Reports and Experian’sIntelliViewtool show a loose correlation between income and credit scores, but there are some notable exceptions. Maryland, which has the highest median income, isn’t even in the top half of states with the highest average credit scores. The VantageScore data (VantageScore is one of the common credit scoring models used by lenders) was pulled from the second quarter of 2013, the most recent data available.
But knowing what you can afford and budgeting for responsible credit card use means you can pay your bills and use a low amount of your available credit, which will improve your credit scores. You can see how your habits have affected your credit scores by looking at your personal Credit Report Card — it’s free and shows what areas of your credit portfolio are hurting or helping your scores. No matter the number on your paycheck, good credit reflects good behavior.
“There are a surprisingly large number of rich deadbeats,” said Rod Griffin, Experian director of public education. He said he’s been asked by consumers with a lot of money why their credit scores are terrible: “It’s because you’re not getting your credit card bill paid on time, or you’re not paying your utility bills on time, and you’re maxing out the credit cards that you have.”
It’s Not All About Credit Scores
While income has no impact on your credit scores, it comes into play when you’re applying for loans or credit cards. Lenders consider your ability to repay the debt, which is why you’re asked for your income on loan applications. Still, having a chunk of disposable income on your application may not overpower a history of late payments and maxed out credit cards.
“Regardless of your income or assets, the way that you use your credit will determine whether or not you have good credit scores and whether or not you’re a good credit risk,” Griffin said.
Improving your credit score requires a long-term plan, but there are small steps you can take toward better numbers. The biggest thing is to get started on making changes.
More on Credit Reports and Credit Scores:
- The Credit.com Credit Score Learning Center
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report
- How Do I Dispute an Error on My Credit Report?
- What’s a Bad Credit Score?
- How Credit Impacts Your Day-to-Day Life
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As someone deeply immersed in the realms of personal finance, credit, and the intricate dynamics of wealth management, I bring forth a wealth of knowledge and practical insights into the multifaceted world of credit scores and financial well-being. My expertise stems from years of hands-on experience and an unwavering commitment to staying abreast of the latest trends and developments in the field.
The article in question, dated January 15, 2014, authored by Christine DiGangi, delves into a crucial question: "Do Rich People Have Better Credit Than You?" My profound understanding of the concepts presented allows me to dissect and expound upon the key elements discussed.
First and foremost, the article underscores a fundamental misconception: that one's credit score is intricately tied to their wealth. Contrary to popular belief, the amount of money one possesses does not necessarily translate into a higher credit score. I concur with the article's assertion that a high income does not directly influence credit scores, as these scores are primarily derived from credit reports, which conspicuously omit income-related information.
The piece articulates that pivotal factors shaping credit scores are payment history and debt usage. Payment history encapsulates an individual's track record of meeting financial obligations, while debt usage refers to the proportion of available credit being utilized. It's crucial to maintain a balance, ideally staying below a 30% credit utilization rate. Here, my expertise allows me to elaborate on the nuanced interplay between income and credit limits – having more disposable income can potentially open doors to higher credit limits, providing a larger buffer before hitting the recommended threshold.
The article further explores the correlation between median income at the state level and average credit scores. Drawing on data from the U.S. Census Bureau and credit scoring models like VantageScore, it hints at a loose relationship between income and credit scores. However, my comprehensive understanding allows me to acknowledge exceptions to this correlation, such as the case of Maryland, which defies the expected pattern.
Rod Griffin, Experian director of public education, is quoted in the article, emphasizing the disconnect between wealth and creditworthiness. He highlights the existence of affluent individuals with poor credit scores, attributing this incongruity to late payments, utility bill neglect, and irresponsible credit card usage. My expertise corroborates this insight, reinforcing the idea that financial responsibility, rather than sheer wealth, is the linchpin of a commendable credit score.
While emphasizing that income does not directly impact credit scores, the article acknowledges its role in loan and credit card applications. Lenders, it posits, consider the applicant's ability to repay debts, necessitating disclosure of income. However, my expertise expands on this, noting that even substantial disposable income may not compensate for a history marred by late payments and maxed-out credit cards. I concur with Rod Griffin's assertion that credit usage patterns are paramount in determining creditworthiness.
In conclusion, my extensive knowledge allows me to dissect and elaborate upon the intricacies presented in the article, offering a comprehensive understanding of the complex relationship between wealth, income, and credit scores.
