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We 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.
- 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.
- Property insurance: As with auto insurance, premiums for your home insurance are a function, in part, of your credit score.
- 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.
- 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.
- 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.
- 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 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.