April 16th, 2009
Perfect Credit: Is it Useful?
Why does everyone want perfect credit? As someone who has worked in financial services for over a decade, I can appreciate the importance of good credit. But perfect credit is another story. You really need the stars to align for perfect credit; over 200 attributes have to be just right. Most importantly, perfect credit will not save you a penny on interest over excellent credit.
It’s on this last point that some consumers really lose perspective. Good credit is a currency that should be exchanged for convenience and savings in the form of lower interested rates. If you are a homeowner, I am sure you know the concept of buying down your interest rates with points. For the lay man, that means using cash to lower (buy down) the interest rate on a mortgage. Good credit does the exact same thing but it is free. Think about it, if you have fair credit, your mortgage rate may be 5.25%. To get your rate to 4.75%, you may have to pay $30K in points. But if you had excellent credit, you could qualify for this rate without any points. That is a lot of saving from just paying your bills on time.
Like cash, your credit it should go down as you use it and gain utility. I don’t think most people think about credit this way but they should. As example, we get emails from members who think it unfair that their credit scores go down after they apply for a loan or buy a home. But if you think about credit as a currency, you quickly realize that you just exchanged some of the good credit you built to allow you the convenience of buying a home before you have all the money and paying a lower interest rate. That seems like a fair trade to me. Also as you payback your loan, your credit will begin to improve again.
In closing, I would like consumers to think less about the perfect credit score but more about how they can benefit from their good credit. A perfect credit score is just a number. It won’t do you any good unless you know how to leverage it.
