What Is Credit? How it Impacts Your Life
Credit – It can be confusing. Creditly can help clear up your questions. Perhaps one of the most misunderstood and often frustrating things about the consumer credit industry is how your history affects so many aspects of your life. Some things have nothing to do with credit but can and do affect your well-being.
What does your score affect? Lots of things. Of course, there’s the obvious: Your score affects what sort of card you can get or if you can take out a loan because those are credit products. But your history can play a role in all sorts of life events and necessities, like finding a job, getting a cellphone, searching for a place to live and taking out insurance policies. We’ll explain a little bit more about what those things have to do with it, but here’s the bottom line: Bad credit can affect so much more than what’s in your wallet.
What Is Credit? Find Out Where You Stand and How Lenders See You
To begin, grab a copy of your credit report and score. This first step is a must toward understanding how it affects your life is to check your standing. You can get two of your scores for free on Credit.ly. This completely free tool will break down your score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you can take to improve it. You’re also entitled to a free annual report from each of the major reporting agencies — Equifax, Experian and TransUnion — once every 12 months. Checking your own reports and scores does not affect your credit score.
What Is Credit? Apartments & Rental History – Are You Approved or Denied?
Landlords, property managers and rental agencies typically review potential tenants’ credit reports. They are usually looking for a pattern of missed payments or other negative information on your reports that indicates you may not pay your rent. If you have bad credit, the landlord or property manager may require you to pay a larger deposit. (Within state law, of course.) Or require you to get a cosigner. Or they may reject your rental housing application altogether. In addition, each time a potential landlord reviews it, it will result in an inquiry on your report that can affect your scores. Be careful about applying at several places at once. Depending on the scoring model, multiple rental inquiries within a short period of time may be counted as one. So you’re not penalized for “shopping around.”
Traditionally, on-time rent payments did not help your credit because they weren’t reported to reporting agencies. But there has been an effort to change that. All three bureaus will include your rent payments in your reports if your landlord reports the information to the bureaus. And some credit scoring models will include that information in your score. An increasing number of property management companies, rent payment-processing companies and landlords now report positive rental history. But rent remains an unreliable way to build credit. If your landlord does not currently report your rent payments, you can ask them to use a rent-reporting service. For example, RentTrack allows you to pay your rent online and reports those rent payments to Experian.
Failing to pay your rent
Failing to pay your rent can seriously damage your credit scores, however. If you’re evicted, that will likely show up in a tenant-screening report (a consumer report, different from your reports but often used in the rental application process).
The collection account may show up on your report. This can remain there for up to seven years plus 180 days from when you first fell behind if your landlord sends your missed rent payments to a debt collector. That’s not good for your scores or your chances of getting future rentals.
Auto Loans
Your credit scores commonly influence auto loan rates available to you. If you have an excellent score (750 or higher on a 300 to 850 scale), you are likely to qualify for the best loan terms available (sometimes even a 0% APR). However, even people with major credit issues can qualify for an auto loan, though the rates tend to be very high. No matter your standing, it’s a good idea to take the time to shop around for the best auto loan rates you can find.
While inquiries from loan applications can lower your scores. Many scoring models will count multiple auto-loan inquiries within a short period of time as a single inquiry. Consumers aren’t penalized for researching their best options.
Cellphones
Cellphone companies may review a version of your credit reports before deciding to grant you a service plan. People with credit issues may be asked to pay a deposit before starting service. There are cell phone services available that do not require a check. However, you should know that a cell phone service application may generate a hard inquiry on your report and can lower your scores.
Checking Accounts
Banks will not check your credit reports during the checking or savings account application process, and your checking and savings account activity is not reported to the bureaus. However, most banks will review your ChexSystems report before granting you a new account. This report is not based on your credit file but instead includes records of bounced checks or other banking negatives.
It’s also important to know that a bounced check can hurt your credit. This is because the person or company to whom the check was made out may hire a debt collector to get the money from you. Collection accounts appear on reports and damage scores.
Child Support Enforcement Agencies
Failing to pay child support can hurt your credit. Child support enforcement agencies can report delinquencies to the credit, and, as a result, non-payment can damage scores.
Credit Cards
When you apply for a new credit card, the issuer will review your credit to see if you qualify for the card and what terms you should receive. The qualifications will vary by issuer and card type. Generally, rewards cards and cards with low APRs require the highest scores, though there are cards for every level, including people with no credit. (Secured cards are the traditional option for no- or bad-credit applicants.) Card companies often review the scores of existing customers and in turn may adjust their rates, but an account-review check will not hurt your credit. Card applications generate hard inquiries on your reports and can lower your score.
Employers
Employers must get written permission before they can review a version of your credit report. Usually employers review this version of your report for major negative records or discrepancies, particularly if your job involves handling money or some sort of security clearance.
If an employer decides to take “adverse action” based on the information on the version of your report. They must notify you first and provide you with a copy of the version of your report they reviewed. Employers can also check versions of reports of existing employees. This is as long as they previously disclosed that they may take such action. When an employer checks the version of your report, it does not negatively affect your scores.
Insurance
Home and auto insurers commonly use consumer credit information (credit-based insurance scores) to determine rates and terms. This, along with your application data. (Though this is not allowed in some states.) After asking for your permission, the insurer will pull your data to calculate your “insurance risk score.” The higher your score, the better your insurance rates may be. This inquiry will appear on your report as a soft inquiry, meaning it will not harm your score.
Mortgages
Mortgage lenders usually review your credit scores and your credit reports from the three major bureaus as part of the application process. In most cases, a mortgage loan is much larger than an auto or student loan, so the review process is much more detailed. The score you need to qualify for a mortgage varies by lender, loan type and the general housing credit market, but the higher your score, the better your chances of approval and a lower rate. Mortgage applications will appear on your reports and can lower your score. But most scores will allow you to “shop around” and will count multiple inquiries in a short period as a single inquiry. (Generally between about 14 and 45 days.)
Student Loans
Federal student loans do not require a credit check, but private student loans and federal student loans taken out by parents do. Your student loans affect your credit just like any other loan, but they’re rarely discharged in bankruptcy, so it’s crucial to stay on top of those payments.
Utility Accounts
When you request services, electricity, cable, and other utility companies may check your credit report with your permission. People with credit issues could be required to put down a deposit or add a cosigner to set up their accounts. Inquiries from utility applications can affect your credit score.
“It depends on how the utility company makes the inquiry,” Rod Griffin, director of public education for Experian, said. “If it is in response to the initial application for services, it would be a hard inquiry. If the request were made for an existing customer, similar to a lender doing a portfolio review, it would be a soft inquiry.”
Creditly offers more help for anyone wanting to learn about credit – Creditly Resources Page
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