One of the realities of our financial system is that your credit matters. All sorts of people are looking at your credit.
A lot.
In fact, what happens with your credit can have a big impact on different facets of your finances. A lot of it has to do with who’s looking at your credit.
Lenders
First of all, lenders are who we think of when it comes to credit snooping. We expect lenders to look at our credit.
If you are going to borrow money, lenders want to know if you’re a good risk. Are you likely to repay your loan? Will you make your payments on time?
Someone with good credit is likely to get good terms. They will see lower interest rates. That means less money paid over time.
If you have poor credit, though, you might not even get approved for a loan. A lender might be afraid you’ll skip out on payments and they won’t get their money back. When you are approved with bad credit, you might have to pay a higher interest rate to help the lender feel more comfortable about the risk.
Building good credit is an important part of staying on top of your finances, especially if you want a loan for a car or a house, or a good rate on a credit card.
But lenders aren’t the only people checking your credit history. Other people are interested in your level of financial responsibility. Even if you think it’s not fair for them to judge you based on your credit history (or lack thereof), sometimes they do.
Insurers
You might be surprised to find out that your credit information could impact your car insurance premium. Even if you have a perfect driving record, a lower score could mean a higher premium. Consumer Reports found that, on average, those with merely “good” scores paid about $214 more per year than those with the best scores.
Not every state allows insurers to check your credit as the set premiums. If you live in a state that does, however, the insurance company might be going through your credit information for clues that you might be more likely to file a claim based on your credit habits. The thinking is that if you’re not as responsible with your money,
The thinking is that if you’re not as responsible with your money, you might not be responsible with your driving. This doesn’t even take into account the fact that sometimes credit information isn’t a truly accurate reflection of your money habits anyway.
Telecom Service Providers
Internet and cell phone providers might also check your credit before they let you sign up. Once again, they are checking to see if you have a history of payment problems.
If you do have payment problems, that might be a sign that you will be hard to collect from when it comes to paying for other services.
Some providers only do a “soft” pull, which won’t affect your credit score going forward. However, other providers might perform a “hard” pull, which will mean a slightly lower credit score. In any case, they are looking at your credit for clues that you might be a problem.
In some cases, you might be denied the ability to sign up for services. Or maybe a cell phone provider won’t let you use a payment plan to pay for your new smartphone. Another possibility is that you will have to pay for your service a month ahead of time, rather than paying for it after the month has passed.
Landlords
Ready to move into a new rental? You’re going to have to get a credit check first, in some cases. Landlords find credit reports extremely helpful in making decisions about potential tenants.
After all, if you have had problems paying in the past, it will show up — and your landlord might decide trying to collect the rent from you each month would be too much of an effort to make it worthwhile.
In other cases, a landlord might use a credit check as an excuse to charge you a higher security deposit. That’s something they can keep just in case you leave without paying rent.
Bottom Line
Even though you may not be borrowing anything, your past payment habits might indicate something about you to people who expect you to make regular payments. And they are looking at your credit.
It might not be fair, especially if you haven’t borrowed very much and your file is “thin,” but it’s becoming standard. Make sure you pay attention to your credit so you don’t miss out.