Last week, in my post about improving your credit score, I pointed out that employers and insurers look at your credit score, in addition to financial institutions. This piqued one reader's interest and she emailed me with this question:
Why do employers and insurers need my credit score if they aren't lending me money?
This is a great question, and one that is asked a lot. The fact of the matter is that your credit score is becoming increasingly important in all aspects of your financial life. Employers and insurers use your score as another assessment of risk. The assumption is that if you have risky financial behaviors, you are more likely to display risky behaviors in other areas of life.
Indeed, auto insurers have data showing that those with lower credit scores are more likely to be in accidents. You could see a premium increase if your credit score plummets. And I regularly see a discount on my insurance premium for having a good credit score. While it may seem like a stretch to connect your auto insurance premium to your credit score, many insurers nevertheless do so.
Understanding why employers might ask to run a credit check follows another train of logic that may not be terribly obvious at the outset. Not every employer will pull your credit history; this practice is most common with companies that work in security and finances. If you have credit troubles, there are concerns that you might be vulnerable to bribes or that you might be at risk for embezzlement. Employers must get your permission to pull your credit file, though, so you can deny them. But in some industries - especially sensitive ones - this could result in your not being hired.
It may not seem fair, but that's the way it is. Your financial reputation is becoming more important, and that means you have to take extra steps to safeguard it.
-- Miranda
Image source: sxc.hu