Why Rich People Still Need Good Credit

Wealth is pretty subjective: Average wage-earners can go through life debt-free and have money to spare upon retirement, while millionaires have been known to mismanage their finances and end up bankrupt. The figures on your paycheck carry you only so far, because business partners, employers and lenders won’t care how much money you make if you have a track record of financial irresponsibility.

That brings us to the subject of credit scores: You may think, “Hey, I’m rich, why should I care about my credit?” For the sake of the argument, let’s say your annual household income exceeds $200,000 — that included only 5% of the U.S. population in 2013, according to the Census Bureau, so it seems like a fair benchmark of exceptional wealth. For comparison: Median U.S. household income was $52,250 in 2013.

If you and your family have an annual budget of at least $200,000, you can probably afford some pretty nice things, even after accounting for student loan payments, taxes and regular bills. Given those costs, it could take you a long time to save the money needed to, say, buy a $400,000 home with cash, among other things. You either need to adjust your budget for strict savings or take advantage of financing options to break large purchases into smaller, affordable payments. Want to buy a house? You’ll probably need to get a mortgage. Looking at a new car? You might be able to afford an all-cash purchase, but otherwise, you’ll need an auto loan. If you’re into other sorts of luxury, you might need something like a boat loan or a pool loan.

All sorts of financing options exist to give people access to big-ticket items, but if you want to be approved for loans and qualify for low interest rates, you need good credit. You build good credit by making loan payments on time, keeping your debt balances low and applying for new credit sparingly. To keep up with how your financial behaviors affect your credit, regularly check your credit scores. You can see two of your scores for free on Credit.com, with updates every 14 days.

The effects of good and bad credit go beyond loan approval. If you’re applying for a new job, particularly something in finance, your potential employer may request your credit report as part of the hiring process (employers can’t check credit scores, just reports). In some states, credit standing impacts insurance premiums. If you’re looking to rent an apartment (plenty of wealthy people rent, particularly in expensive real-estate markets), the landlord is going to run a credit check before leasing to you. They won’t care how much money you make if you have a history of failing to pay bills on time.

Income makes up only a part of your financial security. You can burn up a high paycheck pretty quickly by paying high interest rates or needing to pay cash because you don’t qualify for financing. You can use this lifetime cost of debt calculator to see how much your credit will really cost you over the next several years. Your paycheck may not seem so big, after all.