Mind on My Money: Black Personal Finance 101
Why Credit Matters
Most people are aware that mortgage lenders, and credit card companies check credit reports in order to determine how much of a risk a potential customer may be. But many consumers are not aware of the increasing number of entities that use the information in credit reports to influence their decisions.
Employers A recent study conducted by Harris Interactive for Sperion Corp., a national recruiting and hiring firm, found that more than 30% of companies were checking credit reports as a way of screening employees. The same study revealed that the use of pre-employment credit checks had actually increased by 55% since 2000. Employers are permitted to request access to your credit report if you are a job applicant, or being considered for promotions or reassignments. Many employers have determined that desirable characteristics that they look for can be determined by analyzing the infomation on an applicant's credit report. Key traits such as accountability, commitment, critical thinking and personal intergrity are believed to be measurable by the information contained in a credit profile. Employers are also wary that personal financial problems can create tension and become a distraction at work. An individual has to provide their written permission for an employer to access their credit file, and if an adverse action is taken against an applicant, the employer has to notify that individual and provide the contact information for getting a free credit report. That individual then has 60 days from that moment in order to contact the credit bureau that provided the infomation. Insurance Companies Over 90% of insurance companies now evaluate credit because they believe that it is an excellent predictor of risk. Typically, home and auto insurers evaluate a consumer's credit history in order to determine whether to issue or renew an insurance policy as well as the amount of coverage they will provide. And that can lead to consumers with bad credit paying anywhere from 20% to 50% more than their good credit counterparts. Using what they call a consumer's insurance score, insurers attempt to predict how often a consumer will file a claim and if the claim will be expensive. While many insurers receive their insurance scores from the three major credit bureaus, or from Fair Isaac, the leading credit scoring organization, most large insurance companies have developed their own proprietary insurance score. For an estimated 66% of the insurers that do not have their own score, they use an insurance score calculated by a company named ChoicePoint. ChoicePoint scores can range from 200 to 997 with higher scores signifying less insurance risk. Learn about ChoicePoint. Student Loans Student loans from a variety of sources have made it possible for millions of young people to further their education, yet bad credit can also limit a student's ability to pay for school. While federally subsidized loans work with the assumption that a new student will have no established credit history, the same cannot be said of the federal Parent Loan for Undergraduate Students (PLUS) loan. Offered to parents and graduate/professional students, PLUS loans are less about financial need, and weigh an individual's creditworthiness in order to determine if they will approve the loan or not. This can make all the difference in the world as the costs of higher education have risen approximately 7-8% annually, while the dollar award of the federally subsidized Stafford loan has not increased by an equitable amount. This means that more and more college students will have to depend on PLUS or other private loans in order to fund the cost of their degrees. For these private loans, one's creditworthiness can determine the interest rate that they will be charged, or if they get approved at all. next: about your credit score
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