Today we’re going to talk about something that might seem counterintuitive, credit scores for high-net-worth individuals. You might be asking yourself, “If you’ve already built a degree of wealth, credit scores don’t really matter anymore, do they?” While this may be true to some extent, the big picture tends to be slightly more complicated.
Picture this: You’re pulling into a luxury car dealer with the intent to finally buy your dream car. You have plenty of money to simply buy the car outright, but you want to finance it, because why cut a massive check if you don’t have to, right? Better to keep that money in your account earning interest for you. But when the dealer pulls your credit, they do a double-take because you couldn't possibly be in here to buy this car with that credit score. It can come as a shock to some, but even with wealth, your credit still matters to a degree.
In this article, we’re going to dig deep into the world of credit scores and how they affect high-net-worth individuals. We’re going to look at whether your two-comma bank account really eliminates any negative effects resulting from your credit score, and vice versa. There’s a lot to cover, so let’s get started.
Ok, so when we talk about credit, we’re typically referring to your credit score, or less frequently, to your credit history as a whole. The scores are generally the most important part because they are a simple three-digit number that is calculated using all of the factors of your credit history and current credit report. They are a reflection of your entire creditworthiness up to this point, and while a high score can help open new doors, lower scores can lock those doors fairly quickly.
Now if you’re already wealthy, you probably care as much about your credit score as the used Toyota Camry you saw with a ‘For Sale’ sign in the window. But, even if you’re financially well-off, your credit score still matters, because, in many situations, it’s your financial ‘introduction’ to a company or service. And in the world of finance, first impressions matter a lot. The rules don’t change just because you’re rich.
While you may not realize it, wealthy people use credit products much more than you probably realize. For many high-net-worth individuals, credit is a primary tool for managing cash flow and leveraging investments, and it’s a powerful tool.
But, why does this matter to you? Well, say your investments have really been overperforming the past few years and you’d like to treat yourself to a little vacation home abroad. Sounds nice, right? Well, buying property in the US can be challenging enough without a robust credit score, but when you’re trying to buy an Italian villa or beachfront property in the Bahamas, it can be incredibly hard to pull off, even with a sizeable bank balance.
We’re here to really determine if, when you have substantial wealth, your credit becomes just another numerical limit you can buy your way past. This is the common perception, but is it the reality that the wealthy get to enjoy?
First, let’s consider the power that wealth can wield in some situations. On one hand, when making the substantial purchase of a jet for example, or something equally as extravagant, having a large store of assets like cash in one or more accounts will likely bolster your case.
This is because the lenders will likely look at those assets and be more lenient when considering their weight against the risk of financing such a large amount. Large transactions like these often involve much more in-depth than just checking that your credit score and income meet the minimum cutoff.
That said, this isn’t the universal rule, nor will it be every wealthy person’s experience. Having good credit will often carry its own weight, showing its deep value when wealth alone can’t tell the entire story. For instance, if you’re considering investing in real estate or trying to acquire a business loan, a strong credit history can help make the process much easier, and smoother overall. It shows that not only do you have the wealth, but you’ve used that wealth effectively when borrowing money from other parties, which is something that piles of cash just can’t do.
Another example of good credit carrying its own weight would be the case of a small business owner who is considering expanding their business. While still in the early stages of business development, they’ve been focused on growing and have taken care to maintain a good credit score, even if they may not be able to show off giant bank accounts yet. Lenders will look at not only their assets but their credit scores as well. While wealth can, in some cases, overshadow poor credit, good credit scores will almost universally improve fiscal credibility.
Keep in mind, though, that assets stored in an offshore asset protection trust -- like those commonly found in the Cook Islands, for example -- will not count toward your assets, as these funds are technically not in your name. That is, after all, how good asset protection works.
So, if you do have piles of cash and mountains of money, why should you care about your credit score? There are a lot of reasons, so let’s have a look at some of the obvious and no-so-obvious perks of having good credit, for the wealthy and everyone else.
Being wealthy isn’t just about having money, it’s about having that money work for you all the time. High-net-worth individuals will frequently interact with investments that involve leverage, or multiplying potential investment returns through borrowed funds.
We all need a little safety net sometimes, whether it’s a medical emergency or a sudden investment opportunity. Liquidating many assets can take considerable time and come with penalties, and taxes, but if you have good credit you can simply take out a loan to handle the emergency business, then just pay the loan off early.
Just imagine finding the ideal property for a dream home, or vacation property, and being in the position to buy it. Even if you could afford to pay cash, financing offers numerous tax benefits and can help keep more liquid capital available for other purposes. Additionally, just like pretty much any other loan, having a better credit score means you see loan offers with better terms and more favorable interest rates.
For individuals who own or are invested in a business, your credit score can have an impact on everything from taking out loans for the business to the relationships that the business has with its vendors. It can even help streamline negotiations.
High-net-worth individuals with good credit are often able to get incredible rewards programs through many credit cards, along with many other perks.
Even though there are some massive benefits for those with good credit, credit still isn’t a magic wand that can be waved around to make the impossible suddenly possible. Just like anything, there are limits to how ‘good’ good can be, and those limits are where credit scores stop meaning much.
For some high-net-worth individuals, substantial assets can often compensate for a lack of good credit. For very large purchases, jumbo loans, and things on that level, your investment portfolio may be more attractive to your lender than just your credit score. Many of these cases involve the borrower and lender working very closely to reach an agreement, and external collateral can typically be considered.
There’s also a point where improving your credit score beyond a certain point just doesn’t matter anymore. If your score is already 815, and you’re enjoying access to the best financial products, rewards, and investment opportunities, pushing for those last 15 points may not make any meaningful or even measurable difference in your finances.
Lastly, there are many transactional situations where your credit simply isn’t a factor, you either have the money or you don’t. This includes things like private equity deals or art acquisitions, where your reputation and business connections only take a back seat to your assets.
Whether you’re still on your wealth-building journey or have already crossed multiple wealth milestones, maintaining a good credit score is a smart move no matter how you look at it. Here are some tips to keep your credit looking its best:
As you can see, even though big bags of money can solve a lot of different problems, they don’t typically make you immune to the benefits and even necessities of a good credit score. Good credit can get you better terms, but it’s more than that, having a good credit score is an indicator that you’re financially responsible and can manage your money relatively well. In the end, it’s not about the balance in your bank, it’s about crafting a financial legacy.