If you have experienced financial problems, and your credit score is low as a result, then you probably already know that low scores can hinder your ability to obtain loans and financing. Depending on your goals and plans for the future, you may not be concerned about low scores as long as you aren't borrowing money. However, you may be surprised to learn that a poor credit report can harm you in other ways that have nothing to do with borrowing. Here are a few ways that a low credit score can harm you, and also information on how you can raise your credit score:
How can a low credit score affect you in non-lending situations?
Insurance premiums
One negative effect that low credit scores can have is to raise your insurance premiums, particularly on automobile policies. Insurance companies are primarily concerned about risk management; for example, if your credit report contains information about judgments in lawsuits over traffic accidents, then the company will either decline to cover you or charger higher premiums. Large amounts of debt may be indicative of an impulsive personality, and insurance companies are concerned about drivers who may not exercise restraint while behind the wheel of a car.
Employment opportunities
Another negative aspect to low credit scores is the possibility of missing out on some job opportunities. Prospective employers view credit scores as a way to objectively evaluate your trustworthiness. While many employers will not perform a check on your credit, financial institutions can be expected to take a look at credit reports. If they see behavior such as default on debt, collection accounts, and high balances on revolving credit accounts, such as credit cards, then they are likely to turn you away.
Rental and leasing
If you are in the market for an apartment, condominium or rental home, you may be dismayed to learn that your leasing opportunities are limited if your credit scores are low. Renters rely on credit reports to let them know if you are late on payments. In addition, they may also evaluate your report to see if there are any judgments against you, particularly if those court actions relate to property damage.
Utilities
While a low credit score or adverse report will probably not prevent you from connecting to utility providers, such as electric and natural gas, it can influence a utility to add a deposit as a condition for service. These deposits can be hefty, often exceeding one hundred dollars, and the money will be held in an account until you disconnect. As with renters, utility providers are concerned with payment history; late payments are a sign that they may not receive payment for their services in a timely fashion.
What can you do to raise your credit score?
If your credit score is low or your report contains some of the negative items mentioned, don't give up hope. The score can be raised if you know what factors are important to the credit bureaus who create them. Here are some specific factors that go into your score calculation and actions you can take to improve it:
- Credit card utilization - how much "room" do you have available on your credit cards? If your percentage of available credit is too low, your score will take a hit. Try to pay down your highest interest cards first.
- On-time payments - how often do you miss your payment deadlines? Every time you are more than a month late, it will be reported to the credit bureau and lower your score. Make paying your bills at a place like #1 Cash Stop a priority; if you can't pay on time, contact your biller to see if they will work with you to adjust payment deadlines.
- Age of open accounts - the longer an account is open, the more it positively influences your credit score. While you can't fix this situation by opening accounts, you can make your oldest accounts a priority by keeping them open. If you need to close accounts, try to close your newest accounts first.