You know that your credit score influences decisions that others make about you regarding your finances. And your credit score is about more than determining whether or not you get a loan, and what interest rate you will receive. These are major considerations, and they can mean a difference of thousands of dollars. However, insurers, landlords, cell phone companies, and even Internet providers also use your credit score to make decisions. Your credit score is a numerical representation of your financial habits, and some even make other assumptions about you based on your credit score.
Obviously, your credit score tells others about your payment history, how long you have had credit and whether or not you present an acceptable financial risk to a lender or landlord. But what else does your credit score say about you?
Discipline
Your credit score can indicate your level of discipline, at least in the eyes of others. Decision makers might view someone with a poor credit score as someone lacking in the discipline to do what is needed in order to keep your credit score up. Insurers might worry that such a characteristic lack of discipline might carry over into other areas of performance, such as defensive driving. Someone with a high credit score is often perceived as having solid discipline, and capable of making tough decisions in order to maintain the proper balance in one’s lifestyle, and not make foolish or reckless moves.
Integrity
Some decision makers might decide that a low credit score indicates questionable integrity. A high credit score, on the other hand, can indicate a willingness to fulfill obligations and stay away from commitments that can’t be fulfilled. Someone who has a low credit score may also present other risks. A low score could lead an Internet service provider may be wary of entering into a contract with someone who may not pay as promised.
Responsibility
Many insurers, especially auto insurance companies, believe that there is a correlation between responsible financial behavior and responsible behavior behind the wheel. The reasoning is that those who have a good credit score must be making responsible financial decisions, and are more likely to behave cautiously and responsibly when making driving decisions. Thus, more responsible driving = fewer accidents and claims = lower premiums. Those with low credit scores are often perceived as less responsible, and may be penalized, since they represent a bigger risk.
Bottom line: It may not be fair (especially if you have had an unexpected financial, medical or other catastrophe), but your credit score is increasingly becoming associated with decisions that may not strictly relate to your credit history. Because it is simple, short and relatively easy to comprehend in a single glance, your credit score is rapidly becoming a measure for those who feel they are taking a risk on you. They want to know that you can be trusted, and it’s easiest to rely on your credit score.
Before you dismiss the importance of a good credit score, stop and think about what it might be saying about you.
I’m sorry, but I disagree with the concept of using credit score along to determine an individual’s level of discipline, responsibility and integrity.
Given the current state of the economy, many people who would otherwise have fulfilled their financial obligations, are finding themselves in situations where their income has been affected by layoffs and reductions in work hours. Some of these individuals are not able to get back to work as quickly as needed to keep their obligations current. When I went through a divorce in the mid nineties, I found myself in bankruptcy court due to a decrease in my income and an inability to pay even the small balances on my credit cards. Until you’ve suffered one of these unexpected financial setbacks, you can’t imagine how difficult it is to be judged based on your credit score alone.
Yes, I guess this falls under the “who says everything has to be fair” category 🙂 Obviously, it’s good for people to respect their credit history and do what they can to keep it clean. One could argue that people should keep their unsecured debts to a minimum. In the event of a financial setback, they will hopefully be able to keep things current.
Don’t be sorry. I agree that it’s not necessarily right, either (as I mention in the last paragraph). However, the truth is that many decisions are increasingly based on your credit score, and many judgments about your character, accurate or not, are being made based on your credit score. It’s something you should be aware of.
I would disagree with. I think it also says that you haven’t had to overcome any financial challenges, or that you have free time to call back banks and sit on hold for a very long time.
Whether it’s fair or not, there does need to be some sort of standard that folks can look at. This just happens to be it!
It amazes me how much the public latches onto a credit score as the be-all and end-all of their own self-worth. The reality is that all a credit score measures is how well you pay your debts.
Those who opt for a life without debt will by necessity live with a lower credit score. Does that make them people of lesser integrity and responsbility? I’d say that the converse is true; owing less money makes someone more financially responsible rather than less so.
This is partially correct. Your credit reflects on your discipline but sometimes uncontrollable factors happened to you (such as job losses) and this is really hard to predict once you’ve used to the spending pattern you have right now. No matter what, keeping a good credit record is still very critical and worth the efforts.
It depends what the company is looking for. I always have had a sub-par credit score. My spouse doesn’t work and I have taken some chances with personal business. HOWEVER, I have never screwed over an employer financially and am in fact very lawful with the way I manage money. I run a tight budget at work and a loose one at home. I see spending as a form of creativity. People, they aren’t going to put your credit score on your tombstone!
I’ve had an 850 FICO score for 3 years. while I think ones circumstances play into it , I also believe your choices ultimately dictate your circumstances. thats what separates winners and losers. Sorry …