It's no secret that a low credit score can have a negative impact on your finances. From getting a sky-high rate on your car loan or being denied a credit card, bad credit can hurt you. Here are some of the types of businesses that care about your credit score, from the obvious, to the lesser known.
Banks and other major lenders use a variety of different information to determine whether or not they will lend you money for a variety of reasons, most notably for mortgages and small business loans. Your credit score is among the most pertinent pieces of information that banks will use to gauge your creditworthiness is your credit score. If you fall below what the bank sees as the standard, the chances of your loan application being denied are great.
If you do happen to get approved, you'll most likely be charged a very high interest rate against your loan as a means of protecting the bank from engaging in what they consider to be 'risky' business. Consumers with lower credit scores are believed to be more likely to be delinquent on payments, which is why lenders will slap a high interest rate against the loan, or flat out refuse to loan money in the first place.
2. Car Dealers
Back in the days before the financial crisis hit the US in 2008, even consumers with terrible credit were still easily able to get financed for a vehicle. Shortly after the crisis, however, it became much more difficult to get financed. Your credit score could be standing in the way of you getting an affordable car loan. Your credit score could even determine whether you can take out a loan at all. With a credit score under 500, an auto loan may be entirely out of the picture.
Just like any other type of loan, a good credit score will help ensure that you qualify for a loan at better terms and a low interest rate. For an auto loan, this could mean getting an interest rate as low as 3%. On the other hand, if your credit score is poor, you could wind up with a sky-high interest rate as much as 20%, which will inevitably cost you thousands of dollars more over the life of your car loan.
3. Insurance Companies
Insurance providers often access your credit score reports before underwriting an insurance policy. They use financial history to accurately classify you according to your potential risk. There is a strong link between a consumer's financial history and his or her potential for future insurance loss. Insurance companies therefore believe the use of a credit score helps them provide an applicant with a policy and premium at a fee that properly reflects the applicant's specific risk.
Having a healthy credit score can often result in a much cheaper insurance premium compared to a consumer with an average or poor credit score. To your insurance provider, your credit score is a potential indicator of how you might act, including how likely you are to be delinquent on insurance premium payments. It's also an indicator of the likelihood of you filing more claims than necessary.
4. Utility Companies
Believe it or not, but utility companies also have a vested interest in your credit score. These firms may require you to put down a hefty cash deposit or supply a letter of guarantee in order to be eligible for their services if your credit score is low. These items basically act as a promise that the utility company will be compensated in some way should you not pay your bills.
5. Cell Phone Service Providers
In much the same way that utility companies care about your credit, so do cell phone service providers. If you've got a poor credit score, these companies may require you to put down a cash deposit in exchange for securing service. Bad credit could also stand in the way of you benefitting from any promotions or special rates that the company may be offering. Not only that, but even your selection of phones can be limited if you're not able to afford a deposit for your cell phone contact.
Your best bet is to do what it takes to improve your credit score so that you're not at the mercy of these businesses when it comes to securing a loan, getting an affordable insurance premium, and even signing a cell phone contract.
One of the easiest ways to get a handle on your finances and improve your credit score is with the use of an online financial tool, such as Mint's Credit Monitor. Mint is by far the best free way to manage your finances, and improve your credit score. This tool allows you to check your credit score for free, without ever having to supply credit card information. It's straight-forward, easy to use, and most importantly, it can help you drastically improve the health of your finances.
Lisa Simonelli Rennie is a freelance web content creator who enjoys writing on all sorts of topics, including personal finance, investing in stocks, mortgages, real estate investments, and anything else to do with the world of economics.