Most people know that having a good credit rating is important to have. But many people don’t really understand just how widely-used your credit score really is. Many people equate a high credit score with lower interest interest rates on loans and belive that’s the only thing impacted by it. But the reality is your credit score is used in a multitude of ways. Some are pretty obvious, but others aren’t.
The Obvious
- Getting Approved For a Loan: This is the thing most people equate having with a good credit score. Before the credit crisis, getting a loan was incredibly easy for practically anyone. Today you generally need to have average to good credit to be approved for a loan. However, even now many places offer loans for bad credit, which can be used as a tool to re-build your credit if you have a poor credit history.
- Loan Interest Rates: Similar to getting approved for a loan, your credit rating has a major impact on the interest rates you can receive on a loan. This is true for all types of loans, from auto loans to mortgages to credit cards. The difference in interest rates between high and low credit scores is significant too. With credit cards, the interest rate for a “good” credit score can easily be 5% or more higher than that of a “great” credit score.
- Renting a House or Apartment: Even if you aren’t interested in buying a hosue or simply can’t get a mortgage to purchase a house, your credit score can still be used by your landlord before you can lease an apartment or house.
The Not-So-Obvious
- Auto Insurance Rates: It is becoming more and more common for auto insurers to take a person’s credit rating into account in determining the annual premiums charged for auto insurance. On the surface, this may seem like a stretch. But when you think about it, you can see the possible correlation. A good credit score tends to indicate more responsible behavior, which in turn tends to indicate safer driving.
- Prospective Employers: Depending on the type of job you’re looking for, you may be asked to sign a form allowing the company to pull you credit report. Just like the automobile insurers, employers equate a good credit score with responsible behavior. I have actually heard from a few people that have been turned down for positions because of their credit report, even though they met all the other qualifications for the job.
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8 comments
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Lance@MoneyLife&More
July 24, 2012 at 9:06 am (UTC -4) Link to this comment
I definitely get a lower rate on my car and motorcycle insurance because of my credit score. They associate higher scores with lower risk I guess… I am definitely not going to complain though!
Justin
July 25, 2012 at 12:40 pm (UTC -4) Link to this comment
Right on! If my good credit habits can help lower my car insurance premiums, I’m more than happy to let them pull my credit score.
Holly@Clubthrifty
July 24, 2012 at 9:15 am (UTC -4) Link to this comment
I have Allstate insurance and they check credit in order to set my insurance rates!!! I try to keep my credit score current for reasons like this. At the same time, I don’t place too much importance on my FICO score because I do not plan on borrowing money ever again.
Justin
July 25, 2012 at 12:42 pm (UTC -4) Link to this comment
I used to have Allstate. I have a much smaller company now, and I’m not sure if they take credit scores into account. It’s something I should look into.
Modest Money
July 24, 2012 at 12:38 pm (UTC -4) Link to this comment
People really don’t appreciate all the problems they can run into if their credit score is not very favorable. They might simply think it only affects loans and since they won’t be buying a house anytime soon, no big deal. It could really be holding them back in all kinds of ways though. Makes me glad that my credit is rather good.
Justin
July 25, 2012 at 12:44 pm (UTC -4) Link to this comment
Your credit score is really important and is almost one of those things where if you have bad credit, you’re kind of caught in a loop. You can’t get a loan to rebuild your credit; and it’s difficult to rebuild your credit without some type if loan.
Katie
July 24, 2012 at 10:12 pm (UTC -4) Link to this comment
Credit scores are important for a variety of reasons. They definitely impact your insurance rates, sometimes people can’t even get insurance through certain companies because of their bad credit scores. Unfortunately a lot of people don’t think about the importance of a credit score until they need a loan.
Justin
July 25, 2012 at 12:45 pm (UTC -4) Link to this comment
Definitely. I think understanding credit, along with basic budgeting skills is something that should be taught in school.