Getting Rewarded or Hurt by Your Credit Score
Written by Yun Yang   


Your credit score is closely tied to your daily life. Many decisions that affect your well being are made based on your credit score. A good score can open up more financial or career opportunities for you, while a bad one may devastate the presence of your creditworthiness. Your credit score becomes especially important when it comes to the following financial activities.

Credit Card: Credit card companies and banks will review your credit report and credit score when you apply for credit cards. Your credit history and score will determine what type of credit card you are eligible for, the interest rate and other fees you are charged for, and the credit limit available to you. Credit issuers sometimes also run routine credit checks on existing customers. If your credit score takes a plunge, they might change the terms of your agreement (e.g., increase your interest rate).

Mortgages: Your credit report and score also have significant impact on the mortgages you are applying for. Based on your credit scores and credit history, the bank will determine how much of a down payment is needed, or even if it is needed at all. With high credit scores, you can also expect lower interest rates. Lower scores usually place you in the "subprime" category. In that case you may face significantly higher interest rates and may be offered fewer varieties of loans.

Auto Loan: Your credit score is one of the most important factors that determine whether or not you will get approved for a car loan. It also impacts your annual percentage rate (APR). If your score is low, you may end up paying extremely high interest rates on a car loan, up to nearly 22%.

However even with a high credit score, you may still have to pay high APR or even get rejected if you have not had an auto loan before, or if your current debt load is high.

Insurance: Insurance companies consider your credit score to be one of the top factors when they determine your monthly or annual premiums. However they rely on their own credit-based insurance scores. Though the credit-based insurance scores are not exactly the same as the FICO score or other conventional credit scoring systems, they are based on the same information in your credit report.

Many insurance companies believe that there is a direct relationship between your payment history and their insurance losses. According to Michael Miller, an industry consultant, a bad credit record might cost you more than a bad driving record.

Cell Phones: Cell phone companies typically check your credit before signing you up for service. They’re essentially extending you a credit line and they want to be sure that you’re good for the standard monthly charges. With a bad credit score, you may be asked to take the pay-as-you-go plan, and the hardware deals might not be as good.

Rent: Landlord uses the credit report to get a clear idea on your ability to pay bills on time. If your credit score is low, the landlord may want to charge you more rent for the additional risk.


Employment (getting hired!): An employment background check often includes a copy of your credit report. The three major credit reporting bureaus (Experian, TransUnion, and Equifax) provide a modified version of the credit report called an "employment report” which includes your credit-payment history and other credit habits from which current or potential employers might draw conclusions about you. Employers may use your credit history to gauge your level of responsibility and Bad Credit Can Cost You a Job. Some employers believe if you are not reliable in paying your bills, then you will not be reliable as an employee.

In addition to your payment history, a credit report typically includes information about your former addresses and previous employers. Employers can use this as one way to verify the accuracy of information you provide on an application or resume.




Last Updated on Tuesday, 21 December 2010 17:42