Why Your Credit Score Matters

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Doug Ostrov Blog CardA credit score is an often overlooked but vitally important indicator of financial health. Much like getting an annual medical check-up, monitoring your credit score regularly means you can catch and deal with problems early on.

Personal finance guru Suze Orman urges her readers to earn a “gold star” by getting their credit scores above 720. As she explains in her “Ridiculously Easy Financial To-Do List:”

“Your credit score affects the interest rates you’re offered on credit cards and loans, can be used to vet your job application, and in some states may influence your insurance premiums. So your credit reports, which determine your FICO score, need to be up-to-date and correct (mistakes abound). A score of at least 720 (the range is 300 to 850) earns you a gold star.”

She is right. Credit scores determine the interest rates and premiums you pay, including the interest you will pay on car loans, home loans, and student loans. And, yes, nearly half of all employers in the U.S. check the credit histories of job applicants, and use the information to make hiring decisions. This practice is both unfair and an illegitimate predictor of job performance.

Luckily, however, in New York City employment credit checks are about to become far less common. Yesterday Mayor de Blasio signed a bill to restrict the use of credit scores as a basis for hiring. While the bill exempts a number of professions, such as police officers, national security professionals and those bonded by the city or state, it is still the strictest such law in the nation.

This is a positive development for our city. NYLAG’s Consumer Protection Project submitted testimony before the City Council Civil Rights Committee strongly supporting the bill. Job-related credit screenings often target minorities, students and immigrants, who have been long victimized by predatory and deceitful lending practices that lead to mounting debt and poor credit. The use of credits checks prevents people who are willing to work hard from getting the jobs they need to get back on their feet and avoid further debt.

NYLAG’s Financial Counseling Division was launched in 2009 in response to the global financial crisis to help clients navigate through short term financial crises and plan for long term financial stability. This often includes helping them understand the importance of their credit scores and reports, and how to fix mistakes, prevent and recover from fraud and identity theft, and establish or improve damaged credit. The economic recession, which impacted people from every rung of the economic ladder, illuminated the fact that most people could benefit from  improved access to financial literacy resources and professional financial guidance to help them better manage their financial lives. Even as the economy improves, the need continues. Last year NYLAG was able to expand services to help empower students and low-income New Yorkers to manage their student loan debt and finances through outreach at community based organizations and CUNY colleges across the city.

Protecting Yourself From Consumer Banking FraudIn partnership with the Muriel F. Siebert Foundation, NYLAG launched Learn Money, a financial literacy website that provides people with the basic tools of personal finance. The site provides a starting point for people looking for information about managing their money, controlling spending, investing for the future, protecting assets, and maintaining good credit.

Our clients have told us countless stories of how damaged credit has affected their lives – often over relatively small amounts of money. According to a recent report from the Consumer Financial Protection Bureau, more than half (52%) of accounts in collection are medical bills. The median amount unpaid on medical collections $207 and average is $579. The bottom line is: always get proof of every bill you pay – medical bills especially. Otherwise a small unpaid bill (that you think you paid but was perhaps never processed, or was processed incorrectly by a medical billing office) can end up haunting you and your credit score.

Starting over after a major financial crisis can seem like an insurmountable task. But it can be done. You can work to eventually correct a mistake, rebuild your score, and stabilize your credit. It just takes time. And at the very least – if the new employment credit checks bill does what it purports to do – New Yorkers won’t have to worry quite as much about paying for those mistakes for years to come when it comes to applying for a job.

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