Why Your Credit Score Is More Important Than You Think
Yes, we all know it is good to have good credit. It is nice to always qualify for the latest reward card, to finance purchases, or to a house. That is the easy part. What few people realize is that your credit score is now being used for all sorts of other reasons.
Credit Checks For Job Applicants
The New York Times has an article this week about how companies are using and misusing your credit report in the process of hiring. No longer is being qualified to do the work, or having a good resume enough to land a job. These days, more and more companies are performing credit checks on new job applicants. Certainly, this is a misuse of the credit reporting process. Unfortunately, it is completely legal in most states.
The theory, of course, is that if you make poor decisions in your private life, that you might make those decision for a company. Another concern is that someone in debt will be at a greater risk to steal from their employer. While those may be valid concerns, on some level, it is easy to see how most jobs don’t require financial skills. I also have a difficult time believing there is that much correlation between debt and theft. The article also discusses how the credit reports can merely be an excuse to illegally discriminate on race or other factors.
Combine this practice with the practice of denying credit based on where people shop, and you have a classic case of racial discrimination by proxy.
Of course the most stunning examples of this practice hurting people unjustly are those who have had financial difficulty due to illness. While I pride myself in managing my finances responsibly, I would max out my credit cards in a second if someone I loved needed medical care that was not covered by insurance. Should that disqualify me from a job?
Other (Mis)uses of Credit Reports
It has been widely reported that insurance companies are using credit reports in order to set rates. I know this is happening in auto insurance and it is becoming more common with home insurance as well. It is hard to say what is next. In the future, will you pay more for telephone, cable, or electricity if you have bad credit? Who knows. Is This Fair? Clearly it is not, but it is still legal and it is still reality.
What Should You Do?
While there are a lot of good reasons to maintain good credit, many people can get by without credit cards or debt and feel that they do not need to worry about their credit rating. They are wrong. You never know when you will be looking for a job that will require a credit check. Sure I can construct some scenario where you rent a house, work for yourself, and don’t own a car. Even if that applies to you, damaging your credit will make it very difficult for you should one of those things change.
I have occasionally heard people who have speculated with various levels of seriousness that they should declare bankruptcy so they don’t have to pay for their debts. I have a difficult time finding where to begin in telling them how bad of an idea that is. Knowing that bad credit will haunt their jobs prospects is often a good place to start.