Credit Scores Matter More Than You Think

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Credit scores are important when you want to borrow money or get a new credit card.

They’re important when you want to rent an apartment or a house, since the landlord will usually run a credit and background check on you before they’ll hand over the keys.  If you thought all those people checking their free FICO credit score were wasting their time, you might be surprised to hear that it affects more than loans.

If you thought the importance of your credit stopped there, unfortunately, you’re wrong.  There are several places where your credit score and your credit history can have an affect, even though it has nothing to do with you borrowing money.

Opening A Savings Account

Banks are starting to use your credit when you open anything from a certificate of deposit to a savings account.  The reason is because you may be able to overdraft an account and so they want to know if they should be loaning you that amount, no matter how small, for the brief period until you can get your account above $0.  You probably didn’t expect them to do that, I know I didn’t.

RelatedThe Difference Between a Hard Credit Pull and a Soft Credit Pull

Potential Employers

Of all the areas where your credit score shouldn’t matter, this one probably takes the cake.  Employers will pull your credit as part of a routine background investigation because they feel it’s an accurate indicator of whether or not you’re trustworthy.  This is especially true of employers offering jobs where a security clearances is required or when you’ll be handling cash.

Is it accurate?  Maybe.

Is it fair?  Probably not.

However, we must live in the reality we are in and a poor credit score or spotty history might get you rejected for a job you’re otherwise qualified for.

Insurance Companies

Insurance companies use credit scores to determine how much of a risk you are.  They use it to set insurance premiums on auto and homeowners insurance, though they don’t use it to determine whether or not you get insurance.  According to this Bankrate article, the Insurance Information Institute states that “drivers at the bottom of the credit heap file 40% more claims than drivers at the top of the pile.”  Whether you like it or not, insurers use that information against you.

(Editor’s Note – Your credit score can help you here too.  I get a discount on my auto insurance based on my credit score.)

Get a FREE car insurance quote from GEICO.

Cell Phone Providers

This one is a little less serious than insurance and potential employers but you could be rejected for a cell phone if you have bad credit.  The reason is because cell phone companies bill you at the end of the month, which means they’re effectively giving you a one month loan.

In addition to the monthly service plans, their business model depends on you being able to pay for a monthly service plan for the entire contract period.  Since they often take a loss on the cell phone itself, they have to make it back on the monthly service plan.  If you can’t meet that obligation, they lose money; so they use your credit score to determine if you should get a cell phone!

As you can see, your credit score is starting to be used in areas it was never intended, so it’s important that you make sure you keep up a good credit score.

This is a contribution from Jim Wang of Bargaineering.  Jim writes about personal finance and other money matters at Bargaineering.com.
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Published or updated June 15, 2014.

Comments

  1. Miranda says:

    Great reminders. We see every year how our credit score saves us money on car insurance, since our agent provides us with that information. But I didn’t know about the savings account…
    .-= Miranda´s last blog ..YNAB offers Budgeting Mom Contest =-.

  2. Good points, I am not a big fan of employers paying too much attention to your credit score. About 6 years ago as I was in university I fell behind in some CC payments, ever since I have build things back up have 2 unsecured credit cards with high limits never miss a payment. When I had applied for a new position at a different institution I was rejected because of the incident 6 years ago where otherwise I was perfectly qualified for the position, actually had the offer till they did credit check.

    I think employers need to worry about many other things than someone having bad credit.
    .-= Ray´s last blog ..Pay Yourself First-Saving Strategy: Mailbag =-.

    • I agree somewhat but imagine a company that has million dollar accounts – their rationale may be “how can I trust this person with a $1 million account when they can’t pay their bills on time?”

      I don’t think you should have been penalized for something that happened years prior.

  3. I don’t think a good credit score proves you are trustworthy. If it was a credit counseling or financial services job I could see how it might be considered an important factor, but otherwise it smells an awful lot like discrimination. Though, I have always said we are moving towards a society where the real divisions are not between racial groups but between the rich and the poor.
    .-= Alissa´s last blog ..The joy of a found tennis ball =-.

    • The divisions have always been between rich and poor.

      As for trustworthiness, it adds another factor a company can use. Take insurance, do good grades prove you won’t get into car accidents? Statistics probably show that those with better grades have less accidents and it’s probably the case with credit scores too.

  4. FinanciallySmart says:

    Thanks for your reminders. This article help us to acknowledged that in everything we do it points to our financial reports and so we should always maintained one that speaks well of us.

  5. It seems as important as a credit score is, we would be allowed to see our info whenever we wanted.
    .-= Sam ´s last blog ..How To Get A Free Credit Report =-.

    • I agree that we need better access to our scores, if they were free then companies like FICO wouldn’t have the same incentive to maintain the scores.

      How do you think we can better the system?

  6. In the Defense and other industries that require a security clearance a bad debt ratio will either cause you not to get a clearance or require much more scrutiny.

    The thinking is that people in heavy debt are much more easily manipulated because of their leverage and more likely to make other unwise decisions.
    .-= The Happy Rock´s last blog ..29 Reasons Why Being A Part Time Entrepenuer Sucks =-.

    • Interesting. I wonder if there’s also the thought that if you’re in bad debt you might be more likely to do something questionable that could be a security risk?

  7. Avoid any company that suggests creating a “new” credit identity and then, a new credit report. line of credit is flexible,funds are always available when you need them as long as you maintain the line of credit.

  8. Annie @ Credit Dispute says:

    Thanks for reminding me. Whether we like it or not credit score does matter. Unfortunately they actually play a bigger role in our lives than most people realize. Not only are your credit scores factored in when looking for any type of financing, they also come into play in other areas such as insurance and employment.
    .-= Annie @ Credit Dispute´s last blog ..Bankruptcy: What to expect? =-.

  9. SR22 Insurance says:

    From an auto insurance company standpoint I would like to know if there have been any recent studies done that prove that people who have a low credit score are more likely to be involved in an accident?

    I have some friends who have above average credit scores and are flatout terrible drivers who seem to get in accidents all the time. This scenario kind of goes against the conventional wisdom.

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