5 Financial Decisions Impacted by Credit

Credit has become increasingly important over the past decade as more companies rely on it to evaluate candidate applications. No longer used solely by lenders, poor credit can cost more than a loan approval. Here are the top five areas of your financial life directly impacted by credit.

  1. Loan applications. Whether you are applying for a credit card, buying a vehicle, or purchasing a home, lenders utilize credit scoring as a primary criterion in the decision-making process. The original purpose of credit scoring systems is to evaluate credit risk and help lenders set rates, fees, and terms on loans.
  2. Deposit requirements. Turning on utilities, qualifying for the Internet, or satellite television services typically involve a credit check. A poor credit score can lead to required deposits or declined applications, making it costlier to have utilities and other services in your name.  
  3. Cell phone service. Good credit allows you to move from a prepaid cell phone service to a monthly contract with a major carrier making it easier to manage your account.  
  4. Insurance providers review credit as part of the application process and result in higher quoted rates when you have less than stellar credit. The auto insurance industry leans heavily on credit combined with other criteria such as driving record when quoting rates for drivers.
  5. Employers increasingly use credit to make an employment decision, both for hiring and promotions. Some states limit the use of credit and require the employer to connect the need for a credit evaluation with the job.  

Carrying high amounts of debt impacts your credit score, even when you make on-time payments. For example, FICO score weighs the use of credit compared to limits, as 30% of the overall score, which can significantly drive down your score if you are carrying high credit balances each month.