Some people assume they don’t need to worry about their credit score because they plan to live their lives debt-free. While it’s certainly possible to get through life without using credit, there are many “hidden” areas where credit scores play a dramatic role. Here are five ways that credit scores can impact your life even if you never take out a loan or open a credit card account:
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1. Your Cell Phone
If you want to have a smartphone, chances are that you’ll need to finance it. With the latest brands costing upwards of $600, most people can’t afford to simply buy the newest gadgets up front. Instead, they add on a small monthly payment to their service bill each month. Even if you can pay up front or go with an older phone, most cell phone companies require a credit check before they extend service. If you have poor or no credit, you might be required to pay a down payment before getting your phone.
Of course, there’s the option to go pre-paid, but you usually end up paying more money for less service. You can also try adding a co-signer to your cell phone plan, but just be aware that they’ll be responsible for your bill if you don’t pay. Another option to avoid making a down payment is to join a family plan since only the primary account holder has to have a strong credit history.
2. Your Home
Renting an apartment on your own is almost impossible if you don’t have some kind of established credit. When you sign a lease, you agree to pay a fixed amount over a period of time. If you fail to pay, the landlord may end up losing a lot of money, and this is especially true if your state has a lengthy eviction process.
Because credit scores are a reflection of your ability to make timely payments, landlords will usually check your credit as part of the application process. In addition to determining whether you are approved, your credit score may also determine whether you need to pay an additional deposit, with lower credit scores potentially costing you hundreds more. You might also be required to pay both the first and last month’s rent in addition to the security deposit.
There are ways to improve your chances of getting an apartment even with a limited credit history. And it doesn’t have to include paying more money. If you’ve already rented an apartment before, ask your old landlord for a letter of reference. Also, volunteer to sign a longer lease; that helps your future landlord cutdown on vacancies and lost time and money while trying to fill them.
3. Your Utilities
Utilities such as cable, electricity, phone, and water are essentially short-term loans because you use the services before you pay for them. Utility companies want to make sure they will be paid, and almost always run a credit check when you apply for new service. In fact, not paying your utilities on time can result in damage to your credit score.
While basic services such as electricity and water usually have to take any customers, all utility companies are generally able to collect a deposit. Customers with good credit may not have to make a deposit while those with poor credit often need a deposit worth several months of services.
Utility companies typically use a variant credit score called a Utility Score. You guessed it, it places a greater focus on your history with paying your utilities. So even if you don’t have substantial history with traditional credit, you may actually already have entries on your Utility Score. If it’s your first time signing up, then again try opening your account with a roommate or other co-signer to help defray potential deposit requirements.
4. Your Insurance
Your insurance company cares about your credit scores for two reasons. First, if you select installment payments, they want to make sure you will pay on time. More importantly, insurance companies have found over time that those with lower credit scores are more likely to file a claim and therefore present a bigger risk to the insurance company.
Lower credit scores also tend to be correlated with lower income and savings, and people with less available cash often file smaller claims that people with more cash available would usually pay out of pocket. Expect a tougher time getting approved and higher rates if your credit scores are subpar.
Unfortunately, this is true of most types of insurance, including auto, renters, and homeowners. It’s also worth noting that insurance companies keep close track of your claims history as well. The more claims and even inquiries you have on record, the higher premiums you can expect to pay in the future.
In a world where almost everyone has a college degree, credit scores are also increasingly being used to screen job applicants. This practice has been used in the past for sensitive positions related to national security and the financial sector, but now you can expect to see credit score reviews in any number of jobs, whether or not they are relevant to national security or finance.
Higher credit scores are seen as a mark of responsibility, and an indication that you can be relied upon to do your job. People with poor credit may be seen as potentially having personal stress and distractions that would take away from performing their job duties. Whether or not either of those is true, employers continue to look at credit scores when making hiring decisions.
If you simply have limited credit history, consider writing a letter of explanation if you know your potential employer is performing a credit check. That can help shed light on the fact that your credit history is limited by choice, not by poor decision making. If you do have bad credit, a supplemental letter can still help explain any extenuating circumstances you feel are important.
What Can You Do?
Even if you decide you’d rather pay for everything in cash, there’s no denying that having a good credit score can make your life easier. In fact, many of life’s basic necessities take a look at your financial background through a credit check. While you don’t have to go into major debt in the name of raising your credit score, it’s smart to start building your history as soon as possible.
Even if you currently have credit problems, there are many ways to correct the problem. Reputable credit repair companies have helped millions of people update and remove negative items directly impacting their credit reports.
Regardless of whether or not you seek to open credit card accounts now or in the future, you owe it to yourself to make sure that your credit is the best it can possibly be. After all, you now know how much credit can affect your life even beyond loans and charge cards. When you’re ready to make the big leap to financial freedom, we’re here to help you find the right choice.