5 Surprising Times When Your Credit Counts

When it comes to applying for a credit card or a mortgage, your credit history has a huge impact on your eligibility and your interest rate. In fact, the MyFICO website estimates that a homeowner with a 30-year fixed mortgage and a credit score between 760 and 850 might pay an APR of 3.272 percent, while a homeowner with a credit score of 620-639 might pay 4.861 percent. Assuming a loan of $300,000, that’s a difference of over $4,000 a year in mortgage payments!

Even if you own a home and have no plans to buy or refinance in the near future, you might be surprised to discover that your credit score matters in other situations, too. Here’s a look at five times when it pays to have good credit.

Determining insurance premiums. Insurance companies can charge higher premiums to policyholders with poor credit, because they’re considered a higher risk. “Studies show that people with better credit histories show more responsibility in other parts of their lives,” explains Beverly Harzog, a credit card expert and consumer advocate. “Maybe you take better care of yourself in terms of health insurance or take fewer risks in terms of life insurance.” The Dallas Morning News analyzed insurance industry data and determined that the Texans with a poor credit report can pay up to 42 percent more on home and auto insurance policies.

Applying for a job. A 2010 survey conducted by the Society for Human Resource Management found that 13 percent of companies conduct credit background checks on all job candidates and 47 percent conduct checks on select candidates. In most states, employers can view your credit report (but generally not your credit score) with your consent. “If you’re applying for a job where you’re going to be handling money or a job where you might be handling stuff of a sensitive nature, employers want to see if you’ve handled your own finances responsibly,” explains Harzog.

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Renting an apartment. Landlords and management companies want tenants they can trust to pay rent on time and take care of their unit. Having a less than stellar credit report could be a liability, especially in competitive rental markets where vacancies are tough to find. Harzog says landlords and management companies might check your credit report for judgments, bankruptcies, or high credit card balances. “If somebody is carrying high balances, that might make me wonder if the person is having financial difficulties or cash flow issues,” she explains.

Getting a cell phone. If you have low or no credit, cell phone providers may require a security deposit before giving you a contract or suggest that you sign up for a pay-as-you go plan instead. In fact, an AT&T customer posted on the company’s forum that she’d been asked to pay a security deposit of $500 per phone line. “It makes sense that they would check what your payment history is whenever they’re going to extend a service to someone,” says Harzog.

Opening a savings account or CD. Savings accounts and CDs don’t pay much interest these days, but Harzog says financial institutions still care about your credit. “It’s not really intuitive but they’ll check to make sure you don’t have a history of overdrafts,” she explains.

For all the reasons mentioned above, don’t wait until you’re house or car shopping to work on your credit. “This is not an instant thing,” says Harzog. “The longer you have credit and show that you’re responsible over time, the better score you’re going to have and the better rate you’re going to get.”