What Does Your Credit History Really Say?

Yesterday, my friend was feeling rather dejected. You see, he has been trying to get a job as a database administrator with a bank, and things were going well…incredibly well…with his interviews. Unfortunately, he just got a letter saying that he didn’t qualify for the job and he suspected that it was due to his bad credit score and poor credit history.

Increasingly credit history and FICO score are being used to judge people in non-credit areas. Car insurers, potential employers, and prospective landlords are all using credit pulls to judge people and determine what to charge them, or whether or not they are suitable for a job. On the surface, some of these seem to make sense. But I’d argue using credit history in these ways is at best useless and at worst misleading.

What a Credit History Is and Is Not

It’s important to understand what a credit history is and what it is not.

A credit history is:

• A list of your open and closed credit accounts
• Your payment history on these accounts

A credit history is not:

• An indication of your current ability to pay debts
• An indication of your financial situation
• An indication of your personal integrity

Using Credit History For Non-Credit Purposes

The use of credit history for non-credit purposes to predict something about a person — the trustworthiness of a potential employee, how often someone will make an insurance claim, or if they’d be a promptly-paying tenant — is a poor attempt at best.

• First, you can have poor credit history for a host of legitimate reasons largely outside your control. I’m thinking major illness, job loss, divorce, and errors on the part of creditors or the credit bureaus.
• Second, credit score says nothing about your current income situation and the ability to repay the loan.

So it’s my opinion that using credit history and score for alternate purposes does not make sense. That said, we are in a society where credit score and history do matter, so it’s a good idea to check these things occasionally. You can get free credit report from AnnualCreditReport.com and reference this article on how to get your free credit score.

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