7 Unexpected Ways Your Credit Score Affects Your Finances

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7 Unexpected Ways Credit Scores Affect Your FinancesWe all know just how important our credit score is when we apply for a loan. High credit scores get approved, while low scores do not, subject to other factors of course. But as it turns out, your credit score and credit history affect a lot more than whether you get approved for a loan. In fact, your credit score can have a big impact on more than just loan applications. So with that in mind, here are 7 unexpected ways your credit score and credit history can affect your finances.

  1. Car Insurance: Insurance companies use your credit score to set auto insurance rates. Although controversial, studies have shown a correlation between credit scores and insurance claims. As credit scores for an individual deteriorate, the likelihood of the insured filing a claim goes up. The reason it’s controversial is that some believe insurance companies use credit scoring as a means to discriminate based on race.
  2. Property insurance: As with auto insurance, premiums for your home insurance are a function, in part, of your credit score.
  3. Rental Agreements: Yes, landlords run credit reports. How do I know? Because I’m a landlord. We run credit reports for several reasons. A credit report shows late payments and evictions, two things of significance to landlords as they evaluate prospective tenants. Interestingly, I’ve found that people often make their car payment before their rent or mortgage. If a landlord sees this pattern on a credit report, they are more likely to decline the application.
  4. Getting a job: Certain jobs check the credit history of applicants. For example, any job that requires national security clearance will pull your credit report. In addition, jobs in the brokerage or financial industry often require a background check that includes your credit history.
  5. Credit card offers: A high credit score can make you eligible for credit card offers that others will never see. Just the other day, my wife and I got what appeared to be identical letters in the mail from a credit card company. On the envelope we could see a 0% balance transfer offer. But when I opened the letters, I realized the offers were different. My wife, who has a higher credit score than I, received a 0% APR for 15 months balance transfer offer. The offer I received was for 12 months. Not a huge difference, but those with significantly lower credit scores wouldn’t have received the 0% balance transfer offer at all.
  6. Mortgage interest rates: In addition to whether you get approved for a mortgage, your credit score will impact the interest rate you qualify for. In light of the recent financial and economic upheaval, we are all familiar with subprime mortgages. But even in the prime mortgage category, the higher your credit score, the lower your interest rate. Here is a chart from MyFico showing how your credit score can affect the interest rate you receive on a mortgage:
    credit scores and mortgage rates
  7. Credit card interest rates: There was a time when credit scores did not have the same impact on credit card interest rates as they do today. Back in the day, all credit cards came with eye-popping double digit interest rates. Today, you can find relatively modest single digit interest rate cards, but only if you have a high credit score and rock solid credit history. There are several low interest rate credit cards available today, but they all require rock solid credit.
Published or Updated: April 1, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. I didn’t realize that insurance companies look at my credit too.

  2. DR says:

    It is a controversial issue, but insurance companies do look at an insured’s credit to decide whether to extend coverage and the cost of the insurance.

  3. Aya @ Thrive says:

    Improving your credit score is important, and the first step to take is to know your credit score. You could always get an annual credit report, or you could get your score for free at anytime with Thrive (a free online financial advisory), which can also help you to improve it as well.
    There are scams out there that say they’re free but have hidden costs so it’s important to do some research – starting with maybe sending them an email to find out more. Don’t let scams discourage you from using some resources that are genuinely meant to help people with their finances!

  4. Bill says:

    1) Not all car insurance companies check your credit. Besides that fact, not ever using debt and paying interest to increase your score will save you more than your increased car insurance rate for having a lower/zero score.

    2) Property insurance. See #1.

    3) So having no credit means you have no negatives they are looking for. And they can confirm your rental history with your prior landlords. No credit needed here.

    4) The majority of people are not in a career that requires a credit check. Many of those employers who do check credit histories could care less if you have good credit, they just don’t want you to have “bad” items on your credit. A good credit score is not needed.

    5) Credit card offers? Why in the world would I want more credit card offers? Credit cards are a scam. Banks and corporations taking advantage of our societies dumb financial mentality. Nobody has ever gotten rich using credit cards except the credit card companies themselves.

    6) Manual Underwriting. Yes, it does still exist. Enough said.

    7) If you don’t have and use credit cards, you could care less about credit card interest rates.

    I have a better idea all around. Use cash. Save for emergencies. And don’t borrow money at all. The idea that we all “need” a good credit score is a myth. Keep falling for it and you are only a detriment to your own future wealth.

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