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.
Author
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the owner of Money Destiny and the publisher of WorkSaveLive.com.
{One Comment}
Leave a Reply
Disclaimer and Stuff
I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
In accordance with FTC guidelines, I state that I have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.
Any references to third party products, rates, or websites are subject to change without notice. I do my best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.
For additional information, please review our legal disclaimers and privacy policy.
Interesting article. I didn’t know certain jobs checked your credit history to see if you qualify for the job. It’s kind of like an unsolvable paradox. you need a job to make money so you can pay your credit card bills.