Are Credit Scores Still Relevant?

By Author: William Hauselberg
Total Articles: 816
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Credit reporting agencies have been a part of the loan application process for a long time. Loan underwriters basically use 3 criteria to assess an applicant's fitness for a loan: credit report scores, income to loan payment ratios, and value of any security for the loan (if applicable). The recent economic troubles in the world have resulted in many people losing jobs and homes, ruining their credit report scores in the process, but will this make these scores irrelevant?

Why Credit Scores Have Been Important in the Past

For loan underwriting purposes, there is really no substitute for a credit report. While there is no one who can read minds or know the future, people seldom change their habits. Someone who has spent a lifetime honoring debts and being financially responsible is probably going to continue to do so. Likewise, someone who walks away from such responsibilities regularly over the course of years is likely to continue doing so.

People with bad to average credit should look at the current situation as an opportunity. With more people suffering from bad credit, the ones who make a concerted effort ...
... to improve the situation will get ahead much more easily than in the past. If anything, a good credit score is going to be a more important factor after the financial troubles the banking industry has gone through. When most people have average scores, excellent scores stand out. When most people have bad scores, average scores stand out. Credit-wise, the impact of the recent recession has resulted in more people with bad credit than ever, the perfect chance for someone to improve their credit and shine.

Credit Reporting Agencies Impact More than Loan Applications

While everyone immediately thinks of loan officers, more and more often other people you may need to deal with are using credit reporting agencies to get a clearer picture of your personal level of integrity. It is impossible to judge whether a person is a "good" person. Morals are individual and somewhat relative. Financial responsibility, on the other hand, is a quantifiable measure of how a person conducts his or her life. Human resources departments are turning to credit scores to help judge whether an job applicant would be an honest and responsible employee.

What is Likely to Change in the Future

The trend toward using a person's credit report scores to determine whether that person can be trusted in other areas of his or her life will continue and become ever more pervasive. In short, credit scores are not only still relevant, they are becoming more relevant every day.

This is a well written article on credit report scores. The article explains the impact of credit reporting Agencies as well.