PHOENIXIts widely known that a low credit score can affect your ability to obtain loans and other lines of credit, as well as interest rates. But did you know your credit score can also affect what you drive, your home and even your job?
A credit score is an estimate of your credit risk, which is based on your credit report.
Lenders use this number to determine how likely you will be to repay a loan or line of credit in a timely manner, said Mike Sullivan, director of education for Take Charge America, a national non-profit credit counseling agency. However, other entities consider your credit score to be determinate of your responsibility in other aspects of your life.
Sullivan describes four instances in which your credit score can cost you:
Auto insuranceMany insurance companies use your credit score to help determine the amount of insurance you can receive, as well as premium payments. If your credit score is really low, you can be refused insurance. That can become a major problem in states that require all drivers to carry auto insurance. The reason: consumers with poor credit are assigned to a higher risk group because insurance companies believe they may be more apt to file a claim. The higher the risk group, the higher the cost.
Home insuranceSimilar to auto insurance, your credit score can be a factor in determining your ability to obtain quality home insurance coverage. If you are experiencing serious financial problems, insurance companies have found the temptation to commit fraud increases and, thus, you are a higher risk. Your personal veracity is not the issue since insurance companies use actuarial tables and other trends and assumptions to determine rates. So you are being looked at based on the behaviors of all people in similar situations.
RentersAre you in the market to rent an apartment or condo? Before you start shopping, check out your credit score. Leasing agents also use credit reports and credit scores to determine how likely you will be to meet your monthly rent payments.
Potential jobMany employers use credit scores to determine a potential recruits responsibility level. So, if you have a low score, you can actually be denied a job. According to a 2004 survey by the Society for Human Resource Management, 19 percent of employers always run credit checks before offering a job to a potential new employee, and 24 percent sometimes run such checks. Traditionally, jobs in the financial field have required credit checks, but now this precautionary trend is starting to take off in other industries.
As the importance of the credit score increases, it is even more important that you check your credit report and score for accuracy. According to the U.S. PIRG, the Federation of State Public Interest Research Groups, about 25 percent of credit reports surveyed in 2004 contained serious errors that could result in the denial of credit.
Its vital that you check your credit report on a regular basis. Unfortunately, mistakes happen. The sooner you catch them, the better, said Sullivan.
You can check your credit report for free online once each year at www.annualcreditreport.com.
from the Oct. 10, 2007, issue