A credit score says a lot about how someone manages their finances. It also says a lot about who they are as a person.
More and more landlords and employers are looking at credit scores to determine how well a potential tenant or employee will work out, and in some states a bad score can affect a person’s ability to buy auto or home insurance.
While it may not be or seem fair – especially for someone who has experienced a medical emergency, divorce, job loss or other financial catastrophe – credit checks are becoming a popular way to evaluate more than just a person’s creditworthiness.
A credit score, or FICO score, is really a snapshot of someone’s history and experience with debt and their creditworthiness at a specific point in time. A “good” credit score, typically 700 and above, attracts lenders with low-interest credit offers that can save you thousands of dollars a year.
On the other hand, a low credit score can scare away lenders, bring sky-high interest rates, lead to higher or cancelled home and auto insurance premiums, and deter potential employers from hiring you. Even cellphone companies and some major utility providers check credit.
Employers check credit because they believe employees who are responsible with their money will also be responsible at work, and that those who have fallen on hard times may be more likely to steal or make other bad choices. They want to know if a candidate can be trusted, and running a credit check is a quick, easy way to get a snapshot of a person’s life.
Here is what negative items on your report can say about you:
- Missed or late payments: Your ability to pay your bills on time is the single largest factor in determining your credit score. Having multiple late or missed payments on your credit score can point to responsibility issues.
- Maxed out credit: The level of debt carried in relation to the amount of credit available is one of the largest factors when it comes to calculating credit worthiness. A person who maxes out their credit cards can be seen as being undisciplined.
- Collections activity: Having active collection activity on your credit report speaks to your integrity or determination to repay what you borrow. A potential employer of business partner may view collections activity as a sign that you do not follow through on agreements or are willing to break a contract.
The bottom line is that making sure your financial life is in tip-top shape can help in other aspects of your life as well.
How to obtain a truly free credit report
1st-time homebuyer? Get your credit profile in order
7 financial mistakes to avoid in your 20s
Beware of these credit traps
Rebuilding your credit after bankruptcy