Your Credit's Influence: From Work Life to Home Life
We are all familiar with credit scores and the concept of credit, and many of us check our credit on a regular basis. Most people know credit impacts whether or not you get loans and the interest rates that you have to pay on loans, but did you know your credit score can predict the success of your marriage? There are a few surprises in the universe of things that are impacted by your credit score.
The purpose of your credit score is to give others an idea of how responsible you are with managing your finances. As a result, many people you will use your credit score to make determinations about your level or responsibility beyond the scope of just loans.
Your Marriage
Probably the most surprising and significant impact of your credit score is its impact on your love life. Your credit score can have an impact on your marriage, but also may impact whether you get married in the first place.
Before You Get Married (Or Now If You Already Are)
I tell my students that before they marry someone, it is important to run each others credit. If you and your partner haven't done that yet, it's some thing you should consider. Review the credit reports with each other and discuss the different aspects of your credit reports, what each of you has done well, and what each of you has done poorly.
A credit report is an honest assessment of how each of you manages your finances, and they can help spur an honest and open conversation about your views of money and how you use it in your life. If you're not comfortable with the invasion of privacy and feel your future spouse shouldn't know that much about your financial history, then the two of you are not comfortable enough with each other to get married. I know that seems harsh, but it is true.
Credit & Divorce
Furthermore your credit score will have a massive impact on the happiness of your marriage. A number of studies have demonstrated a relationship between how couples use money and their happiness in the marriage. One Federal Reserve Board study (Credit Scores and Committed Relationships, 2015) found that a 66 score point difference in a couples' credit score when the relationship started "implies a 24 percent higher likelihood of separation during the second year and during the third or fourth year, and 12 percent higher during the fifth or the sixth year."
Reviewing your credit scores and credit reports together is an important part of maintaining open and honest communication and ensuring neither spouse is hiding anything through malice or embarrassment.
Your Career
It is surprising to many job seekers that their credit report has an impact on their career. Credit not only can affect whether or not you get a job, but possibly even if you get a final interview. Many employers pull credit as part of their interview process and will take candidates out of final rounds of interviews based on the results of a credit check. The employer needs your approval for pulling your credit file, but giving approval may also be a condition of moving forward in the interview process.
Although many people think this is unfair, there is a legitimate reason why companies pull credit and avoid hiring people with poor credit. If you struggle managing your own finances, a company may have concerns over whether or not you're going to be able to manage their finances.
Credit Checks are Allowed Even in States where They're Outlawed
Some states have enacted laws to prevent credit from being a part of the hiring process, but credit is almost always allowed if money management is a bonafide occupational qualification. In other words, if there is a legally legitimate reason why managing money would impact the ability for the candidate to do the job, then credit checks are allowed. Positions with budgetary control or influence over the spending of money would have money management as a bonafide occupational qualification. Even if there is a law generally preventing the use of credit in hiring decisions, the law could allow for employers to still hire based partially on credit reports.
Poor Credit Lessens Trust
Additionally, having poor credit can lessen the trust a company has in an employee. One of the key factors that influence whether or not someone steals from a company is financial need. This is not to say people with poor credit are thieves, but a person who is heavily in debt is statistically more likely to give in to temptation. As a result, some employers try to minimize their risk by avoiding putting people with money troubles in key positions.
Your credit score may reduce the chances of you being promoted if the next promotion will put you in a position where you have financial control over an area or budget. Maintaining a strong credit score can help keep career opportunities open.
Where You Live
If you're hoping to move into a nicer neighborhood, your credit will play a role because it will have a determination on where you live, whether you rent or own. Credit can obviously impact your ability to buy a home, as credit determines if you're approved or denied for the mortgage. It's hard to buy the house in the nicer neighborhood if you don't have a mortgage to buy the house.
Renters are equally impacted by their credit. Credit scores are one of the key factors many landlords use to determine whether or not to rent to you. My family has been in real estate for generations now, ever since my grandfather came back from WWII. One of the key lessens we learned was it is better to leave an apartment empty for another week and wait for a tenant with stellar credit. That often comes as a surprise to first-time renters, but it shouldn't. Landlords and common sense both will tell you if a person has not paid their credit card bills or their car loan, the landlord probably isn't going to get paid either.
People with low credit scores are denied apartments in nice buildings, have less desirable lease terms, and will have higher deposit requirements. On the other hand, renters with high credit scores often get much better terms and may be able to avoid putting down the deposit altogether.
Car insurance
Your credit score will also have a massive impact on the cost of your car insurance. In 2015, Consumer Reports completed a study of millions of credit reports and insurance policies. The study concluded credit scores were one of the major factors determining insurance rates.
In fact, in some cases credit score was more important in determining insurance rates than driving history. People with no accidents and good driving records but low credit scores were charged higher insurance rates than other people who had high credit but a poor driving record, including accidents and tickets. The cost of not maintaining your credit wisely goes beyond the monthly payment of your car loan and includes your auto insurance.
Review Your Credit Regularly
Your credit is one of the most important aspects of your financial plan; understanding your credit and managing it is a key part of long-term wealth building. Pull your credit at least once a year by using the website annualcreditreport.com. This absolutely free service will give you access to your credit file once per year for each credit reporting agency. The website does not provide your credit score, but you don't need it. Your credit score is not as important as the information within your credit file. Focus on the way you manage money and good debt management practices, and let your credit score reflect that. Chasing your credit score does you little good other than a false sense of security.
Take the Purposeful Finance Challenge
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