It is not exactly controversial to say that your credit score is important. By now, you probably know that your credit score has an impact on your day-to-day life, from getting a loan, to being able to move into a new apartment, to getting approved for a credit card (of course).
A decent-to-great credit score won’t cause you trouble—in fact, you might not notice it much at all. But if you are made aware of how your credit score affects your life (rather than monitoring it independently) you may already be reaping some negative repercussions. We spoke with Rod Griffin, the director of consumer education and awareness at Experian, to get the information on the things in your life you may not know your credit score can affect.
What a credit score is—and what it means
A credit score is a three-digit number from 300 to 850 built from various aspects in your credit history—including your payment history, how much debt you have, how long your credit history is, types of loans you have, and how many new lines of credit you’ve opened recently—that indicates how likely you are to pay off debt. There is some variance among how scores are calculated (there are two main kinds of credit scores you can have, FICO and VantageScore), but, in general, a score of 800 is considered “exceptional,” 740-799 is “very good,” 670-739 is “good,” 580-699 is “fair,” and anything below a 580 is “very poor.” A credit report is a document that summarizes your history of paying debts and bills but does not have a numerical score included in it.
“Credit scores and reports, in my experience, are more frequently used than people realize,” Griffin says. “They can be used for any kind of financial transaction that takes place.”
Your credit score can impact ordinary things you use every day
“The credit analysis happens takes place in the background—so, if you get approved, you don’t really have to think about how the scores are used,” Griffin says.
Something that can prove problematic with poor credit are your utilities, which include anything you might need for a household, like gas, electricity, internet, water, phone service, and cable. Because utility contracts are a form of credit—when you sign up for, say, internet service, you are entering an agreement with the provider that you will pay for it as long as is indicated on the contract—having a bad payment history could cause them to deny you service. This is the case with cell phone service as well.
Your interest rates may suffer, too
It’s also possible that you could be approved for a loan, even with poor credit, but your interest rates—the amount you are charged to borrow money—will be higher than someone with better credit. (This is also known as receiving a “subprime loan.”) Additionally, poor credit could limit the number of places willing to give you a loan for something like home refinancing, even if you’ve already been approved for a mortgage. According to Bankrate, a site that identifies and compares interest rates, someone with excellent credit in New York state might pay around a six percent interest rate, while someone with poor credit could pay up to 18 percent. This has the potential to become a huge problem—if you can’t afford the additional interest fee on top of your monthly loan payments, you’ll find yourself in a deeper hole than the one you started in.
Your credit report can affect your career
“People often don’t realize that if you’re applying for a new job or even a promotion in some cases, your employer may look at a credit report,” Griffin says. They won’t get your full credit score (which means that, no, it probably won’t matter much if you have a “good” or “fair” score as opposed to an “exceptional” one), so it’s mainly a way to ensure you don’t have any egregious outstanding debts. This is especially likely if you’re going to be handling the company’s money in some way, it’s a sensitive position where you’ll be handling caustic chemicals, or a military or government job or any job that requires a security clearance.
In addition to ensuring you’re responsible and don’t have a ton of built-up late payments, it’s also used as an extra security step: “They’ll use your credit report to verify your identity compared to what you provided in your application to make sure you are who you say you are,” Griffin says.
Your credit report could also come into play in less high-stakes environments.
“If you’re going to be a teacher, work with kids, or even volunteer in a school, they may look at your credit report as part of a background check,” Griffin says. Your credit score won’t be the most important part of the background check—chances are good they’ll be more interested in criminal history—but a super-low score may require some explaining.
How to monitor your credit
To ensure you don’t get any nasty credit-related surprises, Griffin advises checking up on your credit score and report “at least” every 12 months, and especially before you’re about to apply for credit, whether that means a loan, mortgage, a new credit card, utilities, or anything else.
You can get a free credit report once a year at annualcreditreport.com, a government site that allows you to access your reports from each of the three major credit bureaus: Experian, TransUnion, and Equifax. Many credit cards and banks also have features that allow you to check up on your score as often as once a week. Staying up-to-date on your scores can help you notice any sudden dips, which might alert you to bills you’ve forgotten to pay or fraud. If you find something, double-check your accounts to make sure you don’t have any loose ends or get in touch with your card provider to see what’s driving your score down.