Many of us are already familiar with the fact that a good credit history is essential if you want to save money on loans. Indeed, your interest rate on home loans, auto loans and credit cards will be lower if you have a higher credit score. A good FICO score can save you hundreds, even thousands of dollars over the life of a loan.
However, your credit score is no longer just about lowering your cost of borrowing. Your credit history is used for a number of financially related transactions. If you aren’t careful, a slip up could ruin your credit, and you could find yourself passed over for a job, paying higher insurance premiums, or unable to qualify for a cell phone plan.
Who’s Looking at Your Credit History?
You have to understand that lenders aren’t the only people interested in your credit history. More and more, your credit score is being seen as a snapshot of your financial reputation. If it looks bad, you will not get the best deal on your insurance, or you may have to pay a higher security deposit when you rent a home. Here are some of the people interested in your credit history:
- Monthly service providers: The last time I subscribed to a satellite TV service provider, I was told that they wanted to run a hard credit inquiry. Apparently, the company brokering the service wanted to make sure I was responsible and would make monthly payments. My credit score, happily, was good enough to qualify for service. Some cell phone service providers are also beginning to show interest in your credit score before approving you for a monthly plan.
- Insurance agents: Your level of responsibility, and your risk profile, are related to your credit score, according to some insurance agents. A poor credit score can mean a higher auto insurance premium even if you don’t have many violations. I receive a discount on my insurance premium because of my credit score.
- Landlords: The last landlord I had (I have a mortgage now) required a credit check. Applicants without a certain credit score were denied outright. Then, there were tiers associated with the security deposit. The lower the score, the higher the deposit.
- Employers: Honestly, employers aren’t supposed to be looking at your credit score. (There is some anecdotal evidence that some do anyway.) They can, however, request to see a copy of your credit report. What’s in there might influence an employer to decide not to hire you. Building a good credit history is a good idea, since you never know who will be interested in using your credit file as an example of your reliability.
- Bankers: Some banks (ask ahead of time) won’t let you open a checking account or savings account without first running a hard credit inquiry. If you have a low score, you won’t qualify for an account even if you aren’t borrowing anything.
As you can see, your lender isn’t the only person interested in checking your credit. Even if you never intend to take out a loan for anything, your ability to manage credit is still something that is becoming increasingly important.