If you aren’t planning on getting a big loan in the next couple of years, you probably shouldn’t be worried about your credit score right? Wrong.
We all know that your credit score will affect your loans. A higher score means you will get a lower rate on mortgages, car loans, and credit cards. What if you don’t plan on getting a mortgage or a car loan? Does it matter what your score is? Yes, it does. Here are four unexpected situations where bad credit or an inaccurate report can really hurt you.
Prospective Employers: Employers are allowed to use your credit report in hiring, firing , and promotion decisions. Federal law prohibits employers from making adverse decisions if you file bankruptcy (Title 11, Bankruptcy, of the U.S. Code), but every other negative item can be used against you. If you defaulted on a loan or missed a payment, then an employer can use that information against you. The government has been known to run routine background checks which include criminal history and credit history. If you have a low credit score, you could be considered a security risk because you could be more susceptible to bribery or blackmail. Credit history information is most often used for sensitive positions and those that deal directly with money. Your credit history could also be used to confirm other facts you presented about yourself. If you said you spent four years working for a firm in California but your credit history doesn’t show residency in California, it could be a problem for you.
Landlords: This one is a little less unexpected because landlords routinely run credit checks to determine whether you’ll be able to pay the rent each month. Credit reports will list all your late payments and evictions, which are the two categories landlords are most concerned about. It will also give a good indication of the renter’s debt burden and debt profile, which can help a landlord decide which renter is most likely to cause the fewest number of headaches.
Insurance Companies: Insurance companies will use your credit score in determining your premiums because their actuaries have determined a lower credit score leads to higher claims. There are theories as to why this is true but the statistical data supports this policy. The lower your score, the higher your premiums will be. This applies to all insurance policies from auto to home to renters. It will also apply to medical if you seek out independent health insurance but not if you get it through your employer (it’s because as an employee you are treated as part of a “class,” rather than an individual).
Cell Phones: If you have bad credit and want to get a cell phone, you may find that the cell phone company will want you to put down a deposit before they will offer you service. You will also lose access to the multitude of special offers and free equipment many companies offer for new contracts. The reason companies do this is because your score has indicated you have difficulty meeting your obligations. Cell phones are essentially “loaning” you the cost of a month’s service and if you have low or bad credit, they don’t trust that you’ll pay on time, so they require a deposit. This explanation is true for other monthly service type products like cable television and internet service.
As you can see, your credit history and your credit score can have an impact on your life even if you don’t plan on getting a loan. This is why it’s critically important to regularly check your credit history for inaccuracies and correct them when you see them. The only place you can get a free copy of your credit report is at the government sponsored AnnualCreditReport.com.
Have you ever had a credit report error come back to haunt in a way you never expected?
Jim writes about personal finance at his personal finance blog, Bargaineering.