Most adults who have ever tried to purchase a car, house, or college education are familiar with the concept of the credit score: your past financial deeds (and misdeeds) are recorded and analyzed and a numerical score is generated based on this history. This score serves as the basis on which creditors determine whether or not they’re willing to provide you with a loan – a low score indicates that you’re a risky lessee, a high score indicates that you’re a safer bet, in terms of paying the loan back, at least. Seems simple enough, right?
In a sense, yes, the way your credit score is determined is relatively simple. Your score is comprised of elements of all of your past credit-related behaviors, including whether or not you’ve paid your bills on time, the amount of credit you’re currently utilizing, and how long your history with using credit is. This is all sensible when you consider what your credit score is intended to predict about you – how responsible you are likely to be with borrowed money. If you have a recent history of overextending yourself, missing payments, and maxing out credit cards, it’s unlikely that you’ll treat a future loan with the respect it deserves. Or so the credit score logic goes, at least.
But there’s an important component of your financial picture that is not factored into your credit score: your savings, or any other asset for that matter.
The subject of whether or not the major credit bureaus should be considering our past history of saving as part of our credit scores has been intensely debated by personal financial experts for years, and with good reason. On the one hand it’s easy to argue the ability to save money shows a certain level of financial responsibility and personal discipline that potential borrowers should be getting “credit” for in their credit scores. But on the other hand, while saving is an important part of a person’s overall financial health, it’s a behavior that’s totally different from the one that creditors are interested in. A bank doesn’t care about a person’s track record with holding on to money, they’re interested in his or her track record with paying it back.
So the controversy rages on, and there appears to be no resolution in sight. But that doesn’t mean we should stop talking about it! What do you think? Should your savings be considered as part of your credit score?