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Credit News
The Far-Reaching Effects of a Poor Credit Rating
October 1st, 2013
The Far-Reaching Effects of a Poor Credit Rating

The Far-Reaching Effects of a Poor Credit Rating

According to a 2012 Coupon Cabin survey of more than 2,200 individuals over the age of 18, "nearly half (47 percent) of U.S. adults don't know what their credit score is." And when it comes to an individual's credit rating, knowledge directly translates into purchasing power.

Not only is it extremely important to understand your credit score, but also the many different ways that it can impact your daily life. Your credit score can affect not only your ability to obtain credit, but can also cause far-reaching implications in your day-to-day life. As a result, we've outlined a few of the larger items that can be affected by a low credit rating below.

Renting an Apartment

Because a landlord is extending a month of lodging to you at a time, and because many states have stringent eviction laws, most landlords will run your credit report after you fill out an application. If you have poor credit, this can result in a larger deposit, being required to pay additional months upfront, or in a worst-case scenario, declination altogether.

If you have bad credit and are looking to rent an apartment, the first thing you should do is order your credit report. This will allow you to see the items that are negatively affecting your rating, as well as to give you the opportunity to address them. However, this is not a quick-fix solution, as increasing your score can take months, or even years. In the interim, suggestions you can implement include acquiring a co-signer, or finding an apartment that does not utilize credit rating as part of their application procedure.

Obtaining Utility Services

An often-overlooked aspect of poor credit is the inability to obtain utility services such as water, gas, electricity, and phone service. Because many individuals may not understand the link between their credit rating and utilities, this can be a hard lesson to learn upon moving into a new apartment and suddenly being unable to heat their unit or to take a shower.

Like any other form of credit, utilities are set up with a "play now, and pay later" model. In other words, the water you use this month will be billed to your account the following month. As a result, those with poor credit ratings are viewed by the utility companies as high-level repayment risks. Due to this, they may require an individual to pay a larger initial deposit, or to obtain a letter of guarantee from another individual, essentially acting as a co-signer.

Acquiring a New Cellular Phone

Just like with any other form of credit, cell phone companies charge you in arrears, meaning that you will be billed for September's charges in October. And if you are unable to pay these bills on time, the cellular company is left footing the bill for services they've already provided.

Also like other forms of credit, there are typically ways to obtain a new cell phone contract, even if you have poor credit. Higher deposits, a co-signer with a better credit rating, and even shopping several different carriers may be your only options. If all else fails, an individual with poor credit can also purchase a prepaid cell phone, which are typically offered by all major cellular companies.

Employment Woes

Based on data from the Society for Human Resource Management, "about 13% of employers check credit reports for all candidates, and 47% check for those applying to selected positions," especially for those related to financial or executive-level positions.

Keeping in mind that a prospective employer must request permission from the applicant beforehand in order to run their credit report, declining to allow this can raise concerns on the employer's behalf, and may even cost the applicant their job. The good news is that most employers rank an applicant's credit rating below other skills, including relevant experience and education.

If you have a poor credit rating and a prospective employer is requesting to access the information, many employment professionals suggest being upfront with them and simply explaining the situation. Because of a sluggish economy and the long time span between jobs as a result, many are likely to be sympathetic.

Insurance Rates

Except in states where ordering a credit report (often referred to as an "insurance score" within the industry) is prohibited by law, most insurance carriers will review a prospective client's credit history when deciding whether or not to accept them. While factors such as length of driving history, traffic citations, automobile accidents, and homeowner's claims can certainly affect an individual's insurance premium, enough emphasis is placed on insurance score that even someone who has been driving for 20 years without tickets or accidents can be declined if their credit rating is too low.

Many insurance carriers are swiftly moving toward a "multi-variant" rating system, which takes data such as an applicant's insurance score, in addition to accident and citation history, and compiles it in order to determine the likelihood the individual will be to sustain future losses. While actuarial data does show a strong correlation between credit score and loss potential, each insurance carrier holds their own special mix, so the best solution to ensuring the best premium is to not make any claims, and to have the highest credit rating possible.

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