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.
Your Career
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?
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Credit score is an American method of determining credit worthiness and it works poorly compared to those used in Europe. Banks and credit unions in most countries see more on your last five year’s of financial statements and on the workplace you work at if you have a secure job.
This is a first hand account of a credit score affecting employment. I was up for a big promotion at work, and they routinely ran the credit and background, as I would be handling large sums of cash. This was how I found out that my ID had been stolen. Up until that point, my credit was considered as high a status as possible, and had been for forty years. That fact easily allowed the thieves to steal six figures before it was all over. Even though my bosses, as high as the regional manager, went to bat for me due to these extenuating circumstances, the bonding company refused to allow me to work there anym9ore. I am not able to even apply for a decent job to this day. I have been attempting to get a little business going, but, of course, even an inventory loan is out of the question. My painful lesson: paying attention to your credit report has to be as important as any other endeavor one should pay a mind to.
An excellent reminder to protect your credit score.
If you do have a poor score, it’s important to shop around for insurance because I’m pretty sure not all insurers use credit as an underwriting criteria.
On the employment front, some employers will do a background check without pulling credit. It’s also possible for an employer to pull credit to look for bankruptcies. It really depends on the company and the position.