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What is the value of a good credit score if the person is so financially independent (AKA wealthy) to the extent of not ever needing to borrow money again in the form of a mortgage, car loan or credit card? E.g., ethical reasons notwithstanding, if one won a few million dollars in lottery and owed a couple hundred thousand in unsecured debt, what are the incentives to that person to actually pay off his/her debt as opposed to just walking away from it and relying on the cash (s)he has for the future spending needs as opposed to borrowing?

The only thing I can think of is that phone service providers ask for credit report when you want to start a new account but I am sure that could be worked around if you just put down a cash deposit in some cases.

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  • You posed two questions. Are we to assume your first question is what you want answered?
    – Sun
    Jan 23, 2015 at 20:47
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    In the US, many mobile providers usually require either a large deposit or a credit approval for contract plans.
    – Noah
    Jan 23, 2015 at 20:59
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    "A few million dollars" is not really enough to be sure you won't have to borrow again in the future. A natural disaster, legal proceeding, etc., could burn through a lot quickly.
    – BrenBarn
    Jan 23, 2015 at 20:59
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    Additionally, credit card debt (unsecured) is a debt against a person's estate. Assuming you had a couple hundred thousand dollars in credit card debt, you could be on the business end of a lawsuit for the money you owe
    – Noah
    Jan 23, 2015 at 21:02
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    If you live in the woods living a primitive lifestyle, I suspect you don't care about credit, because you probably don't plan on interacting with the state... though you're still vulnerable to being sued (assuming they can find you!).
    – Joe
    Jan 23, 2015 at 21:46

7 Answers 7

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In the United States, the Fair Credit Reporting Act allows companies to buy your credit information for "legitimate business needs." The legitimate use of credit scores and credit reporting varies state to state, but like it or not, you can expect a lot more non-lending use of your credit information in the future.

Companies and individuals use credit reports as an assessment of general behavior because, unfortunately, they work. You've seen the disclaimers about "past performance…", but unfortunately in this case… past performance really has been shown to be a pretty reliable indicator of future behavior.

So…

Some Surprising Uses for Your Credit Score

  • Insurance companies can legally review your credit report as part of the process of determining your rates. This is more about your debt load than your "score", but a high debt load (even if you are always 100% on time) can increase your rates.
  • Auto Insurance companies use a variation of your credit score to create their own rating. It weighs heavier your past history with auto-specific loans than you might have with your consumer debt or your mortgage, but it influences your rate nonetheless.
  • Car Rentals. Many rental agencies require a valid credit card before renting a car, but if they accept debit cards or other forms of payment, many will check your credit score before approving the rental.
  • Cell Phone Plans. Providers can use your credit score to determine eligibility for those highly desirable plans they advertise, and it can influence the amount you need to put down in deposit.
  • Apartment Rentals. This applies to homes, too. Landlords can use credit scores to assess renters and to determine how much deposit they require before you can move in.
  • Utilities. Yup, some utility companies use your credit score to decide whether they'll require a security deposit and how much.
  • Employers and Hiring Decisions. Well, not quite. This is regulated state to state, but in most states, employers can check your credit history in making hiring decisions, but not your credit score. And it's not only for jobs related to handling money… credit checks can be used when applying for any job.
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    A few examples: My current apartment charged me a half month's rent as security deposit based on my credit score, while the previous lease charged 1.5 month's rent. My cable company required me to put down a deposit equal to the cost of the cable box I'm renting, and when I moved the new company didn't require a deposit. A similar thing happened with my electric (no deposit now), phones (no deposit now), and utilities (no deposit now). I paid probably 1.5-2k in deposits when I got my first apartment, and <$100 when I got my second.
    – user17781
    Jan 23, 2015 at 21:59
  • Re: Utilities--yup, I've escaped a deposit due to having a good credit score.
    – Loren Pechtel
    Jan 23, 2015 at 23:36
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    Would someone who is independently wealthy be affected by these issues, though? In some states one can post a bond rather than purchase insurance for driving, either way there is coverage for big accidents. Independently wealthy individuals will not be renting apartments, and can easily put up even large security deposits for utilities, cell phones, etc.
    – user19851
    Jan 24, 2015 at 0:04
  • Regarding hiring decisions: especially if the position involves handling a lot of money / employee would be in a position to be bribed (like working at a bank), hiring somebody with bad credit is a big risk.
    – Toli
    Mar 28, 2015 at 3:20
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what are the incentives to that person to actually pay off his/her debt as opposed to just walking away from it and relying on the cash (s)he has for the future spending needs as opposed to borrowing

Well, you can't just "walk away" from debt - you still owe it. Eventually your creditors would end up suing you in court for the money, plus interest owed. I suppose you could try to continually duck the authorities, but you'd still owe the money legally.

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  • fair enough ...
    – amphibient
    Jan 23, 2015 at 22:16
  • Or more typically, you'd buy a million dollar house, then the courts would take it away to pay off your 100k debt... plus a ton of interest and legal fees.
    – Jon Story
    Jan 25, 2015 at 17:55
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If you're wealthy why do you think they wouldn't sue you for the money you owed??

And, as sunk818 says, credit scores can influence insurance costs. While you could self-insure your home you generally can't self-insure when it comes to liability coverage on a car.

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Only reason I can think of is that having a credit card, or several, is handy for buying stuff on-line, or not having to haul around a fat wallet full of cash.

Of course for some of us, getting the cash back and 0% interest periods are nice, too, even if we don't really need the money. Same as for instance trying to get good mpg when you're driving, even if you could easily afford to fill up a Hummer. It's a game, really.

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  • I like your analogy
    – Jon
    Jan 24, 2015 at 5:05
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According to Money Girl, home insurance premiums are higher if you have a poor credit score. You might self-insure though if you are wealthy.

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There's many concrete answers, but there's something circular about your question.

The only thing I can think of is that phone service providers ask for credit report when you want to start a new account but I am sure that could be worked around if you just put down a cash deposit in some cases.

  • So now the situation is flipped - you are relying on your phone company's credit! Who is to say they don't just walk away from their end of the deal now that you have paid in full?

    The amount of credit in this situation is conserved. You just have to eat the risk and rely on their credit, because you have no credit. It doesn't matter how much money you have - $10 or $10000 can be extorted out of you equally well if you must always pay for future goods up front.

  • You also can't use that money month-by-month now, even in low-risk investments. Although, they will do exactly that and keep the interest.

  • And I challenge your assumption that you will never default. You are not a seraphic being. You live on planet earth. Ever had to pay $125,000 for a chemo treatment because you got a rare form of cancer? Well, you won't be able to default on your phone plan and pay for your drug (or food, if you bankrupt yourself on the drug) because your money is already gone. I know you asked a simpler question but I can't write a good answer without pointing out that "no default" is a bad model, it's like doing math without a zero element.

By the way, this is realistic. It applies to renting in, say, New York City. It's better to be a tenant with credit who can withhold rent in issue of neglected maintenance or gross unfair treatment, than a tenant who has already paid full rent and has left the landlord with little market incentive to do their part.

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    FWIW unless you're stupid and opt out of the ACA, the most you can ever have to pay out-of-pocket for health care costs is somewhere around $6500. So the "$125000 for chemo" is nonsense. The only way you'd pay $125k in "medical" expenses is paying it to a quack for some "treatment" that's not covered.
    – R.. GitHub STOP HELPING ICE
    Jan 25, 2015 at 4:46
  • @R.. do you have a citation for that?
    – djechlin
    Jan 25, 2015 at 7:22
  • kaiserhealthnews.org/news/… and healthcare.gov/glossary/out-of-pocket-maximum-limit
    – R.. GitHub STOP HELPING ICE
    Jan 26, 2015 at 1:29
  • @R.. " Plans with no drug spending limit—the norm, according to experts—don’t have to cap members’ out-of-pocket spending at all." per your first article.
    – djechlin
    Jan 26, 2015 at 14:28
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    That article was written before the law fully went into effect, as it explains. In any case my experience is that drugs administered in a hospital are not treated separately from services with respect to deductible/limit; only prescriptions filled by a pharmacy seem to be separate. Of course having some good authoritative citations would be nice.
    – R.. GitHub STOP HELPING ICE
    Jan 26, 2015 at 17:33
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You're definitely not the first to pose this question. During the peak of the housing crisis I noticed a decent amount of very high dollar properties get abandoned to their fates. Individuals who can afford the mortgage on a 5 million dollar home don't necessarily need their credit to survive so it made more sense to let the asset (now a liability) go and take the hit on their credit for a few years.

Unsecured debt, as mentioned is a little trickier because its backed by default by your personal estate. If the creditor is active they will sue you and likely win unless there are issues with their paperwork.

Thing is though, you might escape some impacts of the debt to your credit rating and you might not "need" credit, but if you were to act as a wealthy person and not "new money" you would observe the significant value of using credit.

credit allows you to leverage your wealth and expand the capacity of your money to import your overall wealth picture. It may prove best to learn that and then make more wealth on your winnings than take the short sighted approach and welch on the debt.

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