Your credit score and information on your credit report matters to more people than you think.
Chances are, you know the importance of a good (670-739) to excellent (800+) credit score when it comes to applying for credit cards and obtaining loans. But did you know that banks and credit card issuers aren’t the only ones pulling your credit report before making important decisions?
That’s because your credit score and credit report offer a snapshot of not only your current money management skills but also the amount of debt you’re carrying and how you’ve handled debt in the past.
So, which situations in your life could warrant someone pulling a copy of your credit report?
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1. Obtaining a car loan
You can probably still buy a car even if you have fair (580-669) poor (below 580) credit, but at what cost? When you have poor or even fair credit, you’re at the mercy of shady used car dealers and predatory lenders charging sky-high interest on auto loans.
If you had to go that route in the past, don’t waste time beating yourself up now. The good news is you can improve your credit score in several ways. For one thing, you could lower your credit utilization rate – the ratio of total revolving credit debt to available credit – which accounts for 30% of your credit score.
It’s also never too late to start making all payments on time to improve your payment history, which comprises about 35% of your credit score. If your payment history isn’t so good, there’s also hope. Reports of late payments automatically drop off your credit report after seven years, with the exception of bankruptcy, which could remain on your report for up to ten years.
2. Paying for car insurance
Around 92% of auto insurance companies consider credit history when calculating your auto insurance premiums, according to Nationwide Mutual Insurance Company. So, how does that affect your insurance premiums.
Auto insurers look at your payment history, length of credit history and which types of credit you have such as loans or credit cards. Then the insurer uses a credit-based insurance score to determine the cost of auto insurance premiums.
3. Applying for a credit card
When you apply for a credit card, your credit score and what’s on your credit report is crucial. Not only can you get denied for having a poor or fair credit score, you might even get denied with a good score for certain rewards or balance transfer cards requiring very good to excellent credit.
If your credit card application is denied, you have the right to obtain a free copy of your credit report from the credit reporting company that the credit card issuer used to make its decision. You can also get a free copy of your credit report once a year from AnnualCreditReport.com.
Once you find out the factors lowering your credit score, you can work on correcting them. To keep any eye on your score, consider signing up for a free service such as Credit Karma, which allows access to your credit report at any time so you can monitor your progress.
4. Getting a new job
No matter how good you looked in your new clothes or how deftly you answered tough interview questions, a potential employer may still rule you out based on a pre-employment background check that reveals a history of paying late, a mountain of debt or a poor credit score.
That’s because employers may be leery of people with money management issues or a high amount of debt due to fears of embezzlement or worries about how you handle responsibility.
It’s best to be upfront with a potential employer planning to run a background check about any negative marks on your credit report. Then assure the employer that you’ve since worked hard to improve money management skills and now have your finances under control.
5. Renting an apartment
No matter how much you envision yourself sipping margaritas beside the pool of your dream apartment, you could run into trouble renting it if you have poor credit. Landlords and apartment managers want tenants with a history of paying on time, so many perform background checks with the potential tenant’s permission before drawing up the lease.
Still, don’t be too quick to lock yourself out of that apartment based solely on your credit score. Be honest with the apartment manager about past money troubles and assure him or her that you’re a better money manager now. Consider sweetening the deal by offering to pay two or three months’ rent in advance to show you’ll be paying on time.
6. Buying a house
One time your credit score matters most is when you’re ready to purchase a home. Lenders look at your credit report and score to determine not only your creditworthiness for a mortgage loan but also to determine the rate of interest you’ll pay, which can make a difference of tens of thousands of dollars over the life of the loan.
Published by Debt.com, LLC