When Your Credit Scores Matter
By Constance Brinkley-Badgett
Your credit scores may seem abstract — just a bunch of numbers loosely associated with how well you pay your bills. But these numbers have real-world implications when it comes to borrowing money, qualifying for housing and sometimes getting a job.
Your credit history, and thus your credit scores, also can affect many aspects of your life that seemingly have nothing to do with credit. So what, exactly, does your credit score affect? Lots of things. Here are some scenarios where your credit scores can help or hinder your ability to do business.
Getting a Cell Phone or Cable Service
Phone and cable companies may review a version of your credit reports before entering a service plan agreement with you. If you have credit issues, such as late payments, defaults or other blemishes, these companies may ask you to pay a deposit before providing you with service.
Opening a Checking Account
Banks don’t check your credit when you open checking or savings account, and your checking and savings account activity is not reported to the credit bureaus. Most banks will, however, review your ChexSystems report before opening your new account. This report is not based on your credit file, but instead includes records of bounced checks or other banking negatives.
Those bounced checks can hurt your credit, and it’s something to keep in mind as you manage your accounts. That’s because the person or company to whom you wrote the check could end up hiring a debt collector to get the money from you, and that collection account will be reported to the credit bureaus.
Renting a New Apartment
If you’re looking for a new apartment, your credit is most likely going to be a factor in whether you get it. That’s because landlords, property managers and rental agencies usually review the credit reports of potential renters. They’re often looking for things like missed payments or other negative information, but in some instances, even your overall credit score can have an impact. If you have bad credit, you may be required to pay a larger deposit or get a cosigner. If it’s bad enough, they may even reject your application altogether.
Buying a New Car
If you have excellent credit, you’re likely going to qualify for the best available loan terms, sometimes even a 0% APR if it’s being offered. On the other end of the credit score spectrum, people with major credit issues will typically pay the highest legal rates if they qualify for the loan at all. The somewhat good news with automobile purchases is that most lenders are willing to work with you, even if your credit is terrible. But be careful that you don’t accept terms that you can’t afford just because you need or want that new ride. Because the loan is secured, some auto loan lenders are looser with their lending practices. That means if you don’t make your payments, they can recoup their losses by repossessing your vehicle. So be sure to shop around for the best auto loan rates you can find, and make sure you consider insurance premiums in your overall costs when you accept the loan terms.
Getting Insurance
Auto and home insurers frequently use your credit information and other personal information to determine how big a risk you’ll be to insure. The bigger the risk, the bigger the premiums you’ll end up paying.
Getting Credit Cards
Getting a credit card with bad credit can be challenging, though there are credit cards made specifically for people who need to improve their credit. These cards typically do not come with any of the perks that cards for people with good or even excellent credit qualify for. In fact, some even require a deposit. If you already have credit cards, that doesn’t mean your credit scores don’t still have an effect on those accounts. Credit card companies frequently review credit scores for existing cardholders and can adjust your rates if your credit has taken a recent hit.
Getting a Mortgage
Like credit cards and auto loans, there are mortgage products available for people with varying credit scores, so it’s possible to get a mortgage even if you have bad credit. Keep in mind, though, the best terms and rates go to those with the best credit scores, so you’ll want to do what you can to improve your scores before applying for your mortgage loan. Regardless of where your credit stands, you’ll also want to shop for the best rates available for your credit situation.
Getting a Job
Some companies check a version of your credit reports as part of the application process to see how well you handle your personal financial responsibilities. This can be especially true for jobs that require you be bonded or insured.
Know Where You Stand
To fully understand how credit scores can affect your life, you need to start by knowing what yours are. You can do that by getting two of your credit scores for free on Credit.com. The completely free credit report summary tool will break down your credit scores into sections and give you a grade for each. You can see how your payment history, your debt and even the kinds of credit accounts you have affect your score. You’ll also get recommendations for steps you can take to improve your credit. It’s also a good idea to pull your free annual credit report from each of the major credit reporting agencies — Equifax, Experian and TransUnion — once every 12 months. Checking your own credit reports and scores does not affect your credit score.
Constance is an editor at Credit.com. Prior to joining us, she worked as a senior digital producer for CNBC and digital producer for NBC Nightly News. Her work has been featured on news sites including MSN, USA Today, The Atlanta Journal Constitution, MSNBC, Fox Business News and The Huffington Post.
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