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.
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 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.)
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.