Most consumers realize the importance of a good credit score. Being able to purchase a home, car, or opening a credit card is largely determined by how successfully you have managed your past debt.
While we know credit scores drive our big ticket purchase decisions, many are unaware the credit score’s shadow is cast over other life events, as well.
The fact is that our credit reports and credit scores are used to weigh whether or not companies should do business with us all the time, in a variety of different ways.
Here are five scenarios where your credit score could be used against you:
1. Renting a Home or Apartment
Almost always, a landlord or an apartment management company will require a thorough background check, and this includes your credit, before allowing you to rent a home or apartment. While not technically credit, landlords extend their tenants a good faith expectation that they will pay to live in the rental property. It’s a smart business practice for landlords to rent to those who are likely to pay their rent in full and on time. Credit scores are highly predictive of a person’s future bill paying performance, so they carry a great deal of weight in rental decisions.
Bottom line: If your credit reports or scores indicate that you are a poor risk, then your application for a place to live might be turned down, and your options for housing end up being decidedly more narrow than a person with a high score.
2. Landing A Job
In certain fields, a clean credit report and good credit rating are integral to snagging a job offer. Financial, banking, retail, or any other industry hiring for a job where a person is in close contact to large sums of money may pull an applicant’s credit report as part of their pre-employment screening process.
Bottom line: If you have failed to properly manage your debt, or show collections, liens, or a recent bankruptcy, hiring managers may deem you too risky to trust with the company’s resources.
3. Making Decisions on Current Accounts
Even if you have secured a line of credit with a credit card company, you are still subject to a periodic credit review. Credit card issuers do not stop caring about the state of your credit just because you were initially approved for a credit card account. Instead, creditors will keep a consistent eye on the condition of your credit report, and note any new, negative trends. After all, if your credit circumstances change and you are unable to make your monthly payments, the creditor is stuck with your unpaid debt.
Bottom line: Your credit score paints a picture, and gives evidence if your credit worthiness is lacking, such as new delinquencies showing up on your report, your debt load dramatically increasing, or opening too many accounts in a short time period. Too much negative information, and your lenders may adjust the terms of your account. These changes may include increasing your interest rate, and decreasing your credit limit. They could potentially suspend your credit line entirely. And yes, it’s perfectly legal and within their rights to do so.
4. Accessing Electricity and Water
Traditional utility providers (i.e. gas, electric, water, etc.) along with satellite, cable, and mobile phone providers routinely rely on credit reports to help reach decisions. If you apply for a utility account and you don’t meet their credit standards, you can expect to pay a deposit prior to having service turned on in your name. Thankfully, traditional utility companies generally will not turn you down outright for new service, even with credit problems.
Satellite, cable, and phone providers will also commonly require a deposit from new customers with credit issues. Such problems can also prevent new customers from qualifying for attractive promotions. Unfortunately, you can be turned down for new satellite, cable, or mobile phone accounts due to a negative credit history, as you do not have a right to their services.
Bottom line: If you have not managed your credit responsibly in the past, have little credit history, or no credit at all, be prepared to offer up a hefty deposit to gain access to utilities. The good news is, usually after 24 months of prompt payments, most companies will return your deposit in good faith.
5. Securing Insurance Coverage
Both auto and homeowner’s insurance providers commonly consult the credit history of applicants before deciding whether or not to approve a new applicant for coverage.
Managing their risk is a key aspect of insurance agencies. A person with negative information on their credit report, from public records to recent late payments to high debt loads, is looked upon with greater risk than someone who has a long record of paying their bills on time. In fact, there are even specific “insurance credit scores” that predict the likelihood that an individual is a good risk.
Bottom line: Managing your credit wisely opens up more options for your auto and homeowner’s insurance, and likely results in better rates. Credit missteps make you look riskier to insurance groups, and may cause you to be denied coverage, offered higher rates, or not being able to secure the best coverage options.
A flawless credit report and high credit score open doors that you probably didn’t even know existed. Companies from all walks of life view your credit history to help them make decisions about doing business with you, or even hiring you. It’s not just about buying a house, a car, or opening a credit card.
If you have made past mistakes with your credit, take heart in knowing that you can turn it around. Get current and stay current on your present debt obligations, pay down your revolving debt as fast possible, and avoid opening new lines of credit unless absolutely necessary. As time passes, your new habits will turn your credit scores around, and you will be able to enjoy the best, most cost-effective opportunities.
What surprising way has your credit been used against you?