To some, a credit score is a grade of how well they’ve managed their finances. Others use different factors to judge their financial achievements, such as their ability to pay for life’s necessities with cash only. They might not give two thoughts about their credit score.
Unfortunately, your credit score affects much more than just the interest rate you receive on loans — whether you like it or not.
In fact, many people are quite surprised when they learn just how much of a role credit scores can play in seemingly unrelated areas.
Here are two surprising things your credit affects:
Your Insurance Premiums
In my year as a personal lines insurance agent, I was shocked at how much credit scores affect both home and auto insurance premiums.
Insurance companies will run their version of a credit score, known as an “insurance score,” when calculating your annual premium. The difference between a person with good credit and bad credit for seemingly identical policies could amount to thousands of dollars per year.
The slightly good news is that not having a credit score means better insurance premiums than having a bad credit score. So, those who choose to forgo all debt and have no credit will pay less for insurance than someone with bad credit — but still more than someone with good credit.
Even more shocking (and slightly ludicrous to me) is the fact that some employers are now requesting credit scores on job applications.
Federal law allows potential employers to run a credit check on you. Supposedly, the better your credit, the more honest of a person you’ll be.
In reality, credit reports are probably only a small consideration when hiring potential employees — but more and more employers are turning to this model. If you’ve fallen on hard times, this can be a tough pill to swallow. Fortunately, you must provide authorization before an employer can run your credit.
What’s All the Fuss?
In case you were wondering why credit scores are used in calculating insurance premiums, studies have shown that people with higher credit scores generally file less insurance claims. If you have a high credit score, you’re considered a lower risk and will therefore receive a better premium.
When it comes to using credit reports for hiring, I couldn’t find any hard facts. I found dozens of opinions, but no studies actually linking bad credit to bad employees.
Will the use of credit expand into more seemingly unrelated areas? My prediction is yes. What do you think?