Your credit score is a seemingly ethereal number that you likely only think of when you are considering acquiring a credit card or loan. Consumers rarely give much thought to their credit score beyond this sort of scenario. What many people do not understand, however, is how vital maintaining a good credit score is for overall financial health and who considers credit scores beyond financial companies. The fact is, there are many different entities that may look at your credit score, and having a good score can potentially save you quite a bit of money all around.
Why It Matters
Your credit score does more than serve as a simple recognition of your ability to pay back your loans — it also illustrates your responsibility in taking care of your debts. Since the viewer of your credit score is not aware of all the fine details, your score tells them how you manage your promises in general. A lower credit score tells the viewer you may not have the adequate amount of responsibility to effectively manage time, information or a company’s interest.
Insurers
A majority of automobile insurance companies consider your credit score to determine your premium rates. Homeowner insurance companies also consider it. Broadly speaking, your credit score represents either a minimal risk (as seen in a higher credit score) or a heightened risk (as seen in a lower credit score). Insurers use your credit score as one factor in determining your risk, and minimizing your riskiness as a policyholder results in lower premiums for you.
Employers
Information and time are as important to an employer as money, and they want employees who, through their decisions, know how to manage these things. Credit scores are seen as an illustration of how a potential employee manages both information and time.
An additional consideration for employers is the likelihood that an individual with a poor credit score may commit some kind of fraud. Since poor credit is often the result of substantial past-due debt, the risk of collection agencies potentially chasing after a person with a low credit score is very real, creating an opportunity for fraud or theft that could result in additional expenses such as legal costs.
Landlords
Landlords also consider credit scores, in this case, the scores belonging to potential tenants. Landlords do not want to incur the legal costs involved in suing tenants for unpaid rents, and since a credit score is a recognition of an individual’s ability to pay (or a willingness to keep a promise), a poor score tells landlords that a potential tenant may try to avoid paying rent or will consistently pay rent late.
Of course, landlords are generally willing to explore explanations for poor credit. However, in the event that a landlord is willing to offer a lease or rental agreement to someone with a low credit score, they may request a bond or a co-signer to alleviate the risk attached to the score.
Poor credit scores can have a tremendous impact on an individual’s personal life as well as their financial life. The good news is that a poor credit score offers an opportunity to make beneficial changes.