A credit score is simply a standardized metric in measuring one’s capability to pay back debt. And whenever you borrow money, your credit score ultimately is the most critical factor in its approval or rejection.
If you have a low credit score, it means you aren’t a good payer, or at the very least, currently incapable of incurring more debt. On the other hand, if you have a high credit score, you have enough capacity to pay that debt.
However, did you know that this only applies to ordinary people like you and me? For some people, the ultra-rich people, credit scores don’t matter. They just get money from banks and financial institutions easily.
Why? Take a look at Max Av’s podcast with Peter and learn why these rich people don’t need credit scores.
Max: You might not know this, but ultra-high net worth people get free money from banks. They don’t get free money. They get cash quickly – because they can pay it back easily. There’s no harm to the bank, you know what I’m saying? So it was like, I think that’s pretty common knowledge. I guess people who are not into this stuff wouldn’t know. I feel like you knew this stuff.
Peter: Yeah, Intuitively. I think it was like, I felt that this is what happened. And now, I know for a fact, this is how they do it.
Max: Of course. The top real estate investors just get straight-up bank money because, in 10 – 30 years, they’ll get that money back anyway.
Peter: There are institutions right now, and this is from my experience in real estate. And I’ve been very actively looking for an investment property. So it’s either I’m going to live in it for a year, or I’m going to rent out like half of it, or I’m going to buy a building and then just keep renting.
There are institutions; I don’t even want to call them banks, that if my business plan is, to go and buy this house and rent it out, or buy this house and flip it. There are people who literally sit down all day, every day, and just give money to those investors and say, here’s what we’re going to do.
“I’ll give you a $400,000 loan. It’s technically not a mortgage, right? You’re going to flip this house. If the house is worth $300,000, you’re going to put a hundred grand into it. It’s $500,000, and we want $50,000 by the end of the first year, or do you have to pay back your whole loan?”
“So what do you do? You flip the house, you take your $50,000 they get their $50,000. And technically didn’t spend a single dollar of your own money”.
It’s crazy. There’ll be people like me – those who do not belong to ultra-high net worth. I couldn’t even say I have a high net worth compared to like more ordinary people. But, there are institutions dedicated to giving this type of people free money. It’s free because you don’t have to put up collateral to get it, but you have to pay when you earn a profit.
Max: Yeah. Well, you always have to pay it back. It’s really easy for these people to get money because they have a reputation. They have a reputation where they can pay back relatively easily. So they’ll get cheap money. Yeah, Let’s just call it cheap money. They get the money because they have a reputation for paying back relatively easily. That’s all it is. And that’s been going on forever.
Peter: There’s another thing that I learned recently. Somebody who, I mean, this can go for anyone who kind of lives ultra debt-free type of lifestyle. Especially with these higher net worth people, they don’t have credit scores. Like, it’s not a thing; Elon Musk doesn’t buy a house and say, “Check my credit score.”
If I had no debt for 10 years and all, and I just kept building up savings. And if I’m going to go buy a house, and you’d check my credit score, I wouldn’t have one. I would just pay for it. So you get to the point where the credit scores, it kind of only matters for ordinary people who, like me who have debts.
Max: Yeah, the point of the credit score is for people who aren’t rich. That’s the whole point.
Peter: Yeah. That’s crazy.
Max: That’s crazy. No, but that’s the whole point. When you’re wealthy, you don’t need the credit score because you can pay it back easily – there’s no need for credit scores.
The whole point of credit scores is establishing a reputation. When you have, when you’re really rich, you already have the reputation because you have so much money. You don’t need the reputation anymore. A credit score is a way of automating and standardizing reputation.
Peter: So you got to get rich and a little famous, then build up your reputation, and the banks will be like, “Oh, I know this guy, let’s give him the money that he needs.”
Max: When you have $30 million in your bank account, you don’t need fame. People will be like, “Oh, so you have 30 million. It would be stupid not to work with them. It would be silly not to offer them something to work with because they have so much cash that can be given to you long-term. That’s why you have to create systems and products and services to get them to work with you.
Credit Scores Are Not Important Once You’re Rich
For the ultra-rich people, credit scores don’t matter. And if you think that is unfair, then you’re thinking wrong.
These ultra-rich people worked very hard to achieve this status. Well, you could say that some of them inherited the status. Still, the whole point of the podcast is – if you want to get money from banks to grow your money, you’ll have to work hard on getting rich and make credit scores not important to you anymore.