This series by personal finance specialist Amanda Reaume focuses on how to improve something that many people overlook: your credit score. These posts will give you tips and tricks to improve your chances of getting approved for better rates when you apply for credit – leading to better student loans, car loans and even mortgages.
We all know that having a good credit score will help us when we apply for a credit card or a mortgage loan, but many of us don’t know about the many other ways our credit scores can help us… or harm us.
Your credit score is thought to measure your level of financial responsibility, so companies often use it to determine your trustworthiness and make certain decisions, from offering you a cell phone payment plan to offering you a job.
Here is a rundown of five ways in which your credit score or history is used other than when you apply for credit.
Renting a Home
Before you move into their home, landlords want to feel confident that you’ll pay your rent on time each month before they sign a lease. Some may reach out to your past landlords and your employer to better understand your reputation as a tenant and to confirm that you have a stable job and steady income.
But being able to pay your rent on time also involves being financially responsible, which is why a landlord may run a credit check on you. If your credit score is too low or if you’re carrying too much debt, a landlord or property management company might deny your application and choose another applicant over you.
On the bright side, each landlord has their own cut-off, so if you have a low credit score and you’re applying for a lease, you may want to plead your case to the landlord – explain why your score is so low and testify that it won’t affect your ability to pay rent in entirety and on time.
Applying for a Job
While not every employer runs credit checks on future employees, some employers feel like an individuals’ credit history is an indication of your dependability. For this reason, employers in fields where discretion and secrecy are critical are more likely to request an applicant’s credit history.
For example, if you’re applying for a job with the federal government that requires security clearance, credit checks are mandatory. The government claims that a credit check allows them to verify that an applicant has a high level of fidelity and will be diligent when protecting government information.
Employers who require credit checks don’t have access to your credit score, but instead get a copy of your credit history. Your credit history shows things like how much credit you have, how much you’re using, when you have been reportedly late on your bills, and if you’re in collections. However, they can only access your credit history if you give them permission to see it.
Applying for a job at a company that does credit checks can be frustrating for people who have been unemployed for a while, since their credit may have taken a hit to pay for things without an income. If that’s the case, you may also benefit from explaining your credit history to your potential employer.
Applying for insurance
More and more, insurance companies are using credit scores to assess risk and determine the price of premiums. That’s because insurance companies have found that credit scores are one of the biggest indicators of potential future claims when it comes to property and car insurance. While they likely won’t deny you coverage if you have a low credit score, you might find yourself paying more in premiums.
Paying for utilities (gas, electricity, landlines, cable, internet)
Utility companies bill customers after providing services to them for a month, without a deposit. For that reason, many companies require a credit check before offering customers these services. If you are a new customer, or if you have bad credit, you may be required to make a deposit or obtain a letter of guarantee to prove you are a trustworthy customer.
Getting a cell phone plan
Most cell phone companies perform credit checks on all their customers. This is because they typically offer deals for a free or discounted phone. So before they can give you that phone, they will want to know if you are able to pay your bills. Cell phone companies can also potentially report late payments to credit bureaus and that could affect your credit score, so it’s critical to pay your bills on time.
What if I have a low credit score?
It seems like your credit score can impact a lot of critical things. So if you have a low credit score, how can you minimize its negative effect on your life? The first thing to do is take steps to improve your score – start paying your bills on time and reduce the percentage of available credit you’re using.
However, one thing to remember is that a credit score can drop quickly, and take a long time to rise again. It takes time for those responsible choices to show up on your credit history and make a difference in your credit score.
That’s why it’s so important to be honest about your credit score and history. When you’re looking for a job or a new apartment, explain why your score is so low or why there are late payments in your history. List any steps you’re taking to make sure you don’t make those mistakes again. By being open and honest, you’ll likely impress your new landlord or boss.
To check out the last post from the How to Improve Your Credit Score series, click here.