With the importance the government, lenders, and people are giving credit scores and credit reports, the question is inevitable: Why is it so very important? What is the credit score used for? Actually, far from being just an ordinary three digit number, this figure has become a critical factor in decision making, especially where money is concerned.
Getting money. When you apply for credit – such as a loan or a credit card – lenders will look at your credit score and use it to help them decide if they should lend you money. Drastic experiences call for more drastic measures. The aftermath of the financial crisis has resulted lenders being more careful than they ever were before. They’re not about to give money out to people who have a high probability of not being able to pay it back. Studies have shown that people with high credit scores are more likely to pay their debts back than those who have low scores. If your credit score is low, therefore, they’re not going to make it easy for you and if they do approve your application at all it’s going to be at a high price; you’ll be slapped with higher interest rates, lower credit limits, and shorter repayment periods.
Service contracts. Service companies – the people who provide your cable television, cell phone connection, electricity and other utility bills – also want to make sure that you’re going to be able to pay for that service you’re applying for. If you want to upgrade your cable subscription and sign up for the premium channels, or get a cell phone subscription, the company will want an assurance that you can really afford it and will be diligent in your payments. To find this assurance they’re going to check your credit report and score and review your credit history to see your track record in paying debts.
Insurance premiums. The credit score is a measure of risk. The higher your score, the less of a risk you are. People with low credit scores are considered high risk. This principle applies to the insurance industry as well. Therefore, if you have a low credit score and you apply for insurance for your car, your house, or a health plan, you’re likely to get one with a higher premium.
Employment. Employers too are being very careful about who they hire. They want someone with good character, someone whom they can trust. Of course, they’re not going to ask you straight if you’re trust-worthy or not; they’re going to look at your credit report and score instead. If you’re being considered for a promotion or a transfer, you can expect that your employer will probably get a copy of your credit report. If you’re applying for a new job, the hiring company is likely to pull your report as well. If you have what the credit reporting agencies consider is a good credit score, then you’re one step nearer to being hired. Of course that’s not the only deciding factor, but it does count a lot.
Housing. If you’re renting an apartment or condominium, you should know that landlords are allowed to pull the credit report and score of the tenant applicant. They’ll use this information to decide whether to rent their unit out to you. If you have a low credit score the landlord may let you have it, but they may charge you an additional fee or give you a higher security deposit.
There really is no getting away from the credit score; it’s used everywhere and by every single bank or lending institution in the country. If you have a good credit score, credit decisions will be fairer and more doors of opportunity will be open for you.
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