One of the items that you have probably discovered in your efforts to improve your finances is that your credit history is important.
Your credit history, usually condensed down to a three-digit number known as your credit score, is used by a wide variety of financial service providers, especially those that lend money.
But why is your credit history so important? And does it even matter if you don’t plan to borrow money?
Credit History: Your Financial Reputation
Your credit history amounts to your financial reputation.
People judge your ability to handle your finances, as well as the likelihood that you will be able to meet your obligations, based on the information in your credit history. Your entire ability to manage money is often based on the information in your credit history.
Crazy (and scary), isn’t it?
If your credit history seems to indicate that you are a poor money manager, and that you are unlikely to be able to make your debt payments in a timely manner, you might not be able to get a loan.
Or, if you are approved for a loan, you might not get very good terms, resulting in paying a higher interest rate (and hundreds or thousands of dollars more over the life of your loan). Because you look unreliable, due to the information in your credit history, you could miss out on financing opportunities, and pay a premium on the opportunities you do qualify for.
It may seem unfair but lenders do have risk when they lend you money and they don’t have much else to go on.
What If You Don’t Plan to Borrow?
If you aren’t planning on borrowing money, it seems as though a credit history isn’t nearly as important. Right?
After all, if you don’t need credit, it doesn’t matter whether or not you look inexperienced or irresponsible on your credit history, right?
Unfortunately, this perception is wrong.
While you might not be at risk for loan rejection when you decide not to borrow, you could still end up paying a premium financial services.
Some of the service providers that look at your credit history before you can sign up for certain services include:
- Cable/Satellite TV
- Cell phone
If you have a bad credit history, you might have to pay more for insurance premiums, or you may not be eligible to live in certain rentals. Some cell phone and cable service providers won’t let you sign up without paying a deposit in advance if you have poor credit.
If it looks like it might be difficult to get regular payment from you, it might be that a service provider offsets some of that risk by charging you more up front.
In some cases, employers may want to take a peek at your credit report (even though they aren’t supposed to look at your credit score). If your financial reputation, as seen in your credit history, looks like it may betray some difficulties with your finances, or indicate that you are vulnerable to bribery or some other security breach, you might not be hired.
I’m not making this stuff up.
I’ve had landlords want to see my credit history. My cell phone provider told me they were pulling my report before I could get approved for a plan. My insurance companies have looked at my report as well. They DO these things.
I’m telling you, your credit history is IMPORTANT.
Stay on Top of Your Credit History
Thanks to the Fair Credit Reporting Act you get free access to your credit report once every 12 months from each of the three credit reporting bureaus: TransUnion, Experion, and Equifax. You can get it at AnnualCreditReport.com.
Since there are 3 bureaus, one way you can go about checking them is to pull one report every four months. This way you spread out the reports and can stay on top of your history throughout the year.
Why do you need to stay on top of your credit history?
Because errors happen and fraud happens.
You may not know there’s something wrong with your credit until you need it and then it’s too late. Checking your report over the course of the year helps you make sure there are no errors on the report and that your history is correct.
Your credit history is an important part of your financial picture.
Increasingly, those involved in providing financial services are interested in your habits. You don’t have to be borrowing money for your credit history to impact what happens with your financial life.
Protect your credit history. If you don’t it will cost you!