Most people are aware of the fact that their credit score determines whether or not they will be approved for credit cards and loans. If approved, a better credit score will get you a better interest rate. People with lower credit scores may be able to obtain loans and credit cards, but these individuals will pay a much higher interest rate than those with good or excellent credit ratings.
Though many individuals know how a bad credit score can affect their borrowing power, fewer people are aware of the other reasons why credit scores matter. A low credit score will affect your home and auto insurance rates. In many cases, a low credit score can cost you a job.
Insurance Companies Use Credit Scores
Auto insurance companies use customers’ credit ratings to determine their insurance rates. Companies that offer Homeowners policies also may use the credit scores of customers to determine rates. Insurance companies create an “Insurance Score.” This score is mostly based on the consumer’s credit score. Other factors are included, but the credit score represents the largest influence on the Insurance Score. The lower your Insurance Score, the higher insurance premiums you will pay for your home and car.
Insurance companies have studied the correlation between insurance risk and credit rating. Their studies have shown that those with higher credit scores represent a lower insurance risk for both auto and home policies. Though the practice is somewhat controversial, most insurance companies use the credit rating to determine the policy holder’s rates.
Employers Use Credit Scores
A low credit score can affect an applicant’s ability to land that perfect job. Employers are increasingly implementing the practice of using the credit scores of potential candidates during the hiring process. When you apply for a job, you may be asked to sign a waiver that allows the company to check your credit history, as well as your criminal record. Employers generally understand that a candidate with a good credit rating is probably more responsible than a candidate with a poor credit score.
Though a poor credit rating may be due to a situation over which the candidate had no control, employers tend to gravitate toward methods that help them “weed out” the potential hires to narrow down the choices and select the right one for their company. As with the use of credit scores to determine insurance rates, the practice of employers using candidates’ credit ratings as a basis for hire are controversial. However, more and more employees are integrating the credit check into the hiring process.
The Importance of a Good Credit Score
A good credit score will save you money on interest rates and will make you a better credit risk for lenders. You will be much more likely to be approved for a loan and to get a better interest rate with a good credit score. However, you will also save money on your home and car insurance, too. A good credit score will keep you in the game when you compete for that dream job.
If you have experienced some credit setbacks and your credit score has suffered as a result, you can work toward building your credit and increasing your score. Obtain copies of your credit reports from all 3 credit reporting agencies so you know what lenders are seeing when they request your credit history. Pay your bills on time and work with the lenders on any accounts that are delinquent or in collections.