Credit Score: How important it really is?
Not that you should hurt your credibility and become a bad paymaster and do not care for your score, but in reality, the credit score is only an indicator and not the deciding factor.
We see a lot of comments these days on the matter of credit score an individual holds, and how it affects his future borrowings. There are many firms who promise you correction in the flaws and betterment in scores. In my lifetime of doing an asset-based loan broking for several top lenders of the country in last 17 years, I have encountered many instances where the credit score had to be dealt with care. Surprisingly, it was really never a matter of concern. Not that you should hurt your credibility and become a bad paymaster and do not care for your score, but in reality, the credit score is only an indicator and not the deciding factor.
A credit manager in senior position on the lender's payroll is responsible for the credit and eventually the collection later. Even after he changes job, he could be held responsible. He or she is empowered enough to consider or ignore the score you have. On the other hand, if it comes up to him/her that you have deliberately not paid, then whatever you do, and whatever your score is, you can't get a loan. Similarly, if the flaw seems minor or very old, and without much seriousness like 'write-off' or 'skipped', you may get away with it, if you are, today, in a good position, earning well and made some decent assets for yourself. There are plenty factors which indicates that you are a good man 'now'. Sounds silly, but it works that way. Here is a list of your 11 gained 'goodness' power-points.
1. Employed with a good corporate for at least a couple of years
2. Having a professional degree
3. Healthy pay package
4. A couple of other credit cards which are running fine, better if one of them is from the same lender where you have applied for a loan now
5. Similarly, not having defaulted earlier with the same lender where you have applied for a loan now
6. Your previous default was more than 5 years ago
7. Your default amount is low (subjective, but say, not more than 20k)
8. You seem to be now regretting your previous issue and not opposing it saying- "I never had that card/ I do not recall any default/ I don't know about it." etc.
9. You have sufficient average bank balance now
10. You are willing to pay it off now, if required
11. Your spouse working and earning well too
So, you can see that if you qualify for most of the above, then having a low score or reports showing your default details won't matter much to the new lender.
However, your low score can make you stumble upon initially, if your application is processed online, where only mechanism decides your fate. Then it becomes important for you to have a mortgage adviser by your side to put up the mitigations of the risks the lender assumes.
And the last most important input I would like to share here is- No bank gives you a better deal like lower rate, lower fee or faster processing if you have a better score than others. Advertisements claiming such things, will have to limit their expectation of discrimination by the credit managers. If it ever happens in future, I will be the first one to write about it.
Till then, Happy Borrowing and Happy Credit Scoring!