Published On: Thu, Jan 16th, 2014

I Don’t Borrow—Why Should I Worry About My Credit Score?

People who don’t worry about their credit report and credit score are being short-sighted. The ubiquitous credit score enjoys a wider following than in past years. Maybe upwardly mobile, corporate ladder climbers took credit reports and credit scores along for ride when they changed careers. It’s possible that overzealous sales reps from Equifax, Experian and TransUnion decided to expand their market or, less likely, but still possible, is that the credit report and credit score say something about a person’s willingness to take risks that it saying something about his character.

How the credit reports and credit scores came to be used outside the world of credit is unclear, but like the big bang, credit reports and credit scores are expanding throughout the universe of our daily lives. The credit report and/or credit score now affects three crucial aspects of our financial life.

does the credit score matter

Beyond Borrowing

We are all fairly familiar with credit scoring and the effects a credit score has on our ability to borrow, the rates at which we borrow and whether or not we can borrow at all. There is no point in expanding on that here. However, did you know that a low credit score or a poor credit history could stop you from opening a checking account even if you are not requesting overdraft protection? Clearly, not being able to open a checking account can force you to use prepaid credit cards or to fund debit only cards. These are often more costly alternatives to the traditional checking account and the debit card that comes with it.

Homeowners and Auto Insurance

The insurance industry has adopted credit reports and by proxy, credit scoring, as a mechanism for accepting or rejecting applicants. Even if the insurance companies accept your application for insurance, the rate you pay for your coverage will very likely be affected by your credit score. Those of us with lower scores will pay more than those with higher scores, all other risk factors being equal. We are not talking just a few bucks here—premiums can double, even quadruple based on low credit scores.

While this may seem grossly unfair, it is legal in most states, and has actually been a practice in the insurance industry for more than a decade. If you were not aware of this, don’t feel bad, insurance companies aren’t advertising it! Insurers refer to this questionable practice as credit based insurance scoring.

Employment

If you have been unemployed for an extended time, your credit score may be the reason. Right or wrong, credit scores are a factor many employers consider as they sift through stacks of employment applications. The tragedy here is obvious. The longer you are unemployed, the more likely it is that your credit score will suffer and, by default, your prospects of finding work will tumble in direct proportion to your credit score. Talk about your “Catch-22!”

 

Certain positions are more vulnerable than others. Jobs in finance or accounting, almost always require that you pass muster in terms of your credit history and score. Alternatively, if you are applying for a position as an assembly worker, the employer may not bother to check your credit history. The operative word here is “may.” Many businesses follow the mantra of “best practices” which often means that common sense is tossed out the window.

In the common scenario that finds you neck and neck with a competing applicant, the credit history can often be the deciding factor for a prospective employer. Imagine losing out on a great job because you over-looked a credit card payment a couple of years ago when you were on vacation.

While federal law requires that you consent to a credit check, as a practical matter, your refusal to give that consent will probably result in your application being routed to the circular file.

Looking for an Apartment?

Most landlords will check your credit report. Landlords aren’t lending you money, but they are entrusting their property to you and they do expect to be paid each month.  If you have a poor credit history, you have severely limited your housing options.

Utilities

Yes, even the utility companies might check your credit history. If it isn’t good, be prepared to fork over a hefty deposit to get the lights on, the water flowing and the gas burning.

As we have seen here, the impact of your credit history and credit score can be felt well beyond borrowing. Having no plans to borrow does not absolve you from the need to pay heed to your credit. Our credit scores and credit histories are likely to increase in significance as the statisticians and others find new ways to use them as the yardstick against which other aspects of our lives can be measured.

What are your thoughts about using credit scores as factor in hiring? Have you ever lost out on a job because of your credit? How do you feel about the use of credit scores and credit reports in non-borrowing situations?

Dominique Brown
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Dominique Brown

Dominique Brown
Dominique Brown is a husband, father, financial planner, author of the book "How to Fix your Credit," author of Your Finances Simplified, owner of S&D Capital Holdings and a landlord. Mr. Brown's advice can be found on the Huffington Post, Business Insider, Yahoo, Madame Noir, HR Block and Ebony Magazine.
Dominique Brown
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About the Author

- Dominique Brown Dominique Brown is a husband, father, financial planner, author of the book "How to Fix your Credit," author of Your Finances Simplified, owner of S&D Capital Holdings and a landlord. Mr. Brown's advice can be found on the Huffington Post, Business Insider, Yahoo, Madame Noir, HR Block and Ebony Magazine.

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Did you know?

African Americans are significantly more likely to have some type of debt (94%) compared with the general population (82%). Credit card debt, student loan debt, and personal loans are all significantly higher in the African American community.

Source: Prudential’s 2013 "African American Financial Experience" study