Good Credits necessary?

[EweSheep]

Why are the banks and insurance companies always depend on credit ratings? What good does it do for them if so many people can't make payments and they now have bad credits?

Funny, ten years ago, my DH could not get easily a loan for his vehicles, considered a high risk and pays everything on cash and its bad for him. His dad co sign for him. Always paid off his cars way ahead of time. This was before I married him.

Now get this, he gets a loan from a local bank and he automatically gets a house loan with execellent credits with all the vehicles he got paid off and he was able to get a nice used updated van without any problems or fuss. And we pay everything by debit card or cash, no credit cards being used or paid off. Does it have something to do with his Dad's co signing? (he didn't have credit either, paid everything in cash and does not trust banks at all).

I filed bankruptcy five years ago so I know my credit is shot. Had excellent credit before I lost my job.

Now with all those folks with bad credits, are the banks lowering their expectations or standards for loaning out to these folks? Or would they do a better job in seeing how you are making out in finances? Would "credit check" be a thing of the past? Or this a "gimmick" thing they go by and you want to use your debit or cash basis only, how would anyone get a good credit?

 

[Big Daddy]

As Dave Ramsey says. "nobody needs credit. Pay cash for everything including your mortgage". No it doesn't work that way in the real world. I'm sure Dave has enough money to pay cash and he is probably self insured. I agree the credit scoring is a bad way but it is the only way they have.

What really irks me is the insurance companies using your credit rating to set your insurance rates. Seems like your driving record would be more important. To me it's just an excuse to charge higher rates.

 

[gettinaclue]

From my understanding of the insurance companies' reliance on credit...

The worse your credit score is, the more likely you are to make a claim, thus costing the company money.

Better your credit score, the better your premium. You can also get a higher premium if you don't have established credit since you will be an "unknown". More risk (risk of the little to unknown, and also risk the bad) means you pay more premium.

They pass cost back on to you in the form of higher rates for higher risk. Also, you will be surcharged depending on the type of claim it is and the company you are insured with.

The little I know of banks, could fill a thimble.

 

[Big Daddy]

From my understanding of the insurance companies' reliance on credit...

The worse your credit score is, the more likely you are to make a claim, thus costing the company money.

Better your credit score, the better your premium. You can also get a higher premium if you don't have established credit since you will be an "unknown". More risk (risk of the little to unknown, and also risk the bad) means you pay more premium.

They pass cost back on to you in the form of higher rates for higher risk. Also, you will be surcharged depending on the type of claim it is and the company you are insured with.

The little I know of banks, could fill a thimble.

It's a broad brush way of doing things though. some people have bad credit because it's part of an irresponsible way of living and they tend to file more false claims. Other people have bad credit because they had a failed business or had major medical bills they were unable to pay as agreed.

I m a damage appraiser and my territory is mostly middle class and upper middle class as well as some lower upper class people. They obviously have good credit from the cars they drive and the houses they live in. Some of them are frequent crashers and file 3 to 4 claims a year. Most have preferred policies. They also file a lot of false claims. Claiming their car was hit while parked, when it has a big yellow mark down the side from a drive through pole. It's a bad system at best.

Banks on the other hand using credit ratings makes a lot of sense. It's the only way they have of telling your risk. Quite often a BK will help your credit. Right now you have to have grteat credit to get anything. Going back to the 70's.

 

[gettinaclue]

Big Daddy,

I was an insurance agent for about 10 years and I agree that it's a bad system at best. Unfortunately, it is what society has made it.

I whole heartily agree it is a broad brush way of doing things. I once worked for a man who, when a client he had for 30 years, and his father had insured HIS father...he lost his job, boss man paid his premium for him, client told someone, and boss man was sued for discrimination b/c he didn't pay this other guys insurance - and the guy won. I joke you not.

You have people playing the system in insurance just like you have people playing the welfare system and on and on.
In the end, I think it's more about your sense of integrity and honesty.

The people you are talking about-those types of claims, are a major reason the rates are so high.

The appraisers and adjusters are a big part of the defense in that sort of claim(which I'm sure you are fully aware). I personally busted 3 people last year for bogus claims. One lady was claiming $100,000.00. Called the fraud department and felt great doing it.

 

[Beekissed]

Good credit is nice to have, certainly. Necessary? Nope. Haven't had a well-established credit for 23 years now and am doing fine. There were times I wished I had credit to purchase or pay for something in an emergency...but then, I got by anyway and am here and going strong, so it wasn't needed after all.

Would life have been easier? I couldn't say. I'd probably be working and living to pay off things I "thought" I needed, many years later. Right now, I owe a student loan. Nothing else. It feels great!

 

[hoosier]

What really irks me is the insurance companies using your credit rating to set your insurance rates. Seems like your driving record would be more important. To me it's just an excuse to charge higher rates.

same here

Like gettinaclue said, they feel that a person with a lower credit score will be more likely to file a claim, but it seems to me that they could check your claims history for that.

 

[EweSheep]

Thanks folks! I could never understand why it was so necessary when you really dont need credit cards to get "good credit" to get yourself started. If we never had credit cards, sometimes banks dont want to deal with you even you have NO outstanding bills. Why would we need to get ourselves in so much debt anyway simply because we need to build up credit. :/

 

[Beekissed]

I keep tellin' ya, its a conspiracy!!! Don't you hear those voices??? Maybe its just me...... :/

 

[EweSheep]

Oh yeah, its conspiracy all right! Then the banks will start finding ways to pump more money in their piggy banks!