How’s your credit rating? Do you know? Do you care? I know people who think it doesn’t really matter. They don’t “believe” in using credit; they’re “cash only” folks. Unfortunately for them, credit is becoming a significant factor in our lives. You know they are ignorant of this when they say “why do I need good credit? ”
Your credit score is becoming increasingly important. It’s a measure by which you are judged. It’s a—perhaps the—standard many use to determine your reliability and worthiness. It affects you more ways than you may think.
It affects where your children go to school.
When it’s time to enroll your children in school, which school will they attend? Most go to one in your public school district. That means they will (more than likely) go to a school close to where you live. So where do you live?
If you rent, the rental company probably ran a credit check on you, and you were approved for the housing unit you applied for. That means your , credit score and a few other factors got you into your place. Had your credit been worse you would not have been allowed to rent that unit. If your credit were better you could have picked a different place to live, perhaps something larger or in a more upscale neighborhood, and as exasperating and unjust as it seems (and despite efforts to the contrary), many of the schools with the best reputations are located in those upscale areas.
If you’re buying your home, you underwent the same credit check, and the outcome is the same. If your credit had been…size, neighborhood, and schools are subject to your credit rating’s influence.
Your credit score can be a huge factor in determining where you live and what school your children attend, but that’s not all it affects.
Your credit affects where you live.
It affects the car you drive
Unless you can pay cash for a car, your credit score and report will determine if you are eligible for the car you want or if you will have to “just settle for second or third best.” And that’s also true of every other major purchase you make.
It affects your car insurance
Among other things, like your driving record and tickets for at fault accidents, your credit score affects the price of your car insurance. Insurance companies have determined that people with low—poor—credit scores are at a higher risk of accident than those who have good or better credit scores.
Insurance companies are for profit businesses. They want to keep a favorable income/payout ratio. It’s in their best interest to charge drivers deemed greater risks a higher premium. A low credit rating may cause you to pay more for your car insurance. Truthfully, it will probably affect the amount you pay for all insurances.
It Affects Other Monthly Bills
As with car insurance, a low credit score will cause you to pay a higher rate for utilities and cell phones, and of course it affects the interest rate you pay on your credit cards. Businesses anticipate that people with low credit scores will eventually default on payments, either depriving the business of revenue or costing to collect, so they try to frontload their profit.
Your job
Based on credit scores, employers have started to be more selective of new hires. It’s becoming a normal practice to use your credit score to determine if you qualify to be in their employ. Even volunteers face this evaluation: When I enlisted in the US Navy, a credit check was done to determine if I
Your credit score could effect your job
would be able to live on my Navy pay. (That was not done in the 1970s when I first went into the Army.)
Although the job market is reported to be improving, businesses, manufacturers, and corporations are defending their positions—and position cannot be maintained if they hire the wrong people. They want qualified, dedicated employees at all levels. Your personal references and even past performance may not be enough to get you hired. They also look at your credit history. Many employers use a credit check to help determine if you are the kind of person they want working for them.
It seems amazing that your credit rating can carry more weight than your education or work experience in determining if you are the best—the most qualified person—for a job. Here’s some of the reasoning behind that philosophy:
Some employers want to insure your faithfulness. They hold the very reasonable opinion that if you can’t afford to live on the salary at which they wish to hire you, you won’t stick around if a higher paying job is offered at another company.
Or, if you need to work a second job, an employer may be concerned about your performance. Will you be available to work overtime? Could working two jobs make you too tired to do a good job? Reasonable or not, a perspective employer may not hire you if you can’t afford to work for solely for him.
A high debt to income ratio will cause your credit score to decline. If you have a poor rating the credit industry may consider you to be an irresponsible buyer (You buy too much stuff that you can’t really afford.), and a risk payment default for sure. (You’re likely to have your stuff repossessed because you can’t pay for it.)
If your debt to income ratio is too high or you have poor credit for any other reason, you may be considered a risky choice as an employee, because the employer will feel he can’t trust you. After all, why would someone trust your with their “stuff” (any facet of their business), when you can’t be trusted with your own?
In other words: If you have a low credit score caused by irresponsible spending, they’ll feel you are not stable, competent, or reliable enough for the job.
It Affects Your Ability to Start a Business
At some point in their life many people want to start a small business. They wish to live the American dream: Work when they want to work and make as much money as possible. (You do realize the dream doesn’t really work that way, don’t you?) If you have low credit score, your chances of securing a loan are negligible, but should you manage to get one, you can be sure you’ll be paying a high interest rate. That higher interest rate will cut into your profits and may be a contributing factor if your business fails.
Conclusion
Your credit score is important to you and your family. Take it seriously.
