12
THE UNIVERSITY DAILY KANSAN
FINANCE
WEDNESDAY, JULY 7, 2004
Bad credit affects insurance and work
By Abby Tillery atillery@kansan.com Kansan staff writer
Credit is no longer just about getting a loan or a credit card. It can affect your employment opportunities and even your insurance costs.
Some students aren't aware that when they are approved for a credit card they are creating a track record that will follow them outside the credit world. Future employers and insurance companies can use credit history to decide employment and premiums.
About 80 percent of college students have a credit card according to www.cardweb.com.
Good credit can only help your insurance scores at Farm Bureau Mutual, said Tony Kimmi, product development vice president for Farm Bureau Mutual's Midwest region.
Farm Bureau Mutual's policy is not meant to punish customers with higher rates if they have bad credit, but to reward them for good credit.
"If you handle your finances and money wisely you're more likely to handle your insurance risk wisely," Kimmi said.
Different insurance companies have different policies,but the biggest misconception is that insurance companies use a credit score to establish insurance liability, Kimmi said.
A credit score is a numerical representation of your credit worthiness based off your credit history.
The number represents five aspects of your credit: payment history, length of credit history, new credit, types of credit used and amounts owed.
The score used by insurance companies is called an insurance score.
The equation used to calculate the score is different for each company and is proprietary information, Kimmi said.
The same credit reports used to determine your credit worthiness are the same ones used in analyzing your insurance rates.
Farm Bureau Mutual adjusts rates for automobile and homeowner insurance using the insurance score. The company began using the insurance score five to six years ago.
In 2003, Kansas passed a law allowing the use of credit history to decide insurance policy rates, but the law prevents insurance companies from denying a person coverage based only on credit history.
"If you handle your finances and money wisely,you're more likely to handle your insurance risk wisely."
Kathy DuPree, CitiFinancial's branch manager, said credit history played a huge roll in hiring potential
Tony Kimmi
Product development vice president for Farm Bureau Mutual's Midwest region
She said it could be an insight to future problems.
candidates.
The employer could be looking at dealing with a garnishment issue if someone consistently had delinquent accounts, but that was not the number one reason CitiFinancial pulled a credit report.
"The most important reason has to with integrity and honesty," DuPree said.
Beneficial checks credit on potential employees and will not hire a candidate if their credit history is bad, said Betty Shepherd, human resource assistant for Beneficial's Midwest headquarters.
Judy Lewis, owner of The Mortgage Specialist Group, Inc., 2619 W. 6th St., said she ran credit checks on potential
employees.
The credit check helps gain insight into a person's character, she said.
Lewis said that when counseling people, she noticed that bankruptcies ran in families and that people learned how to manage their money from their parents.
She said the marketplace catered to those who had credit and encouraged them to buy now and pay later.
"We have to find out how to be responsible in the system," Lewis said.
Joe Oberzan, vice president of Capital Federal Savings, said another important point to good credit is to have some.
A person without credit history has just as much trouble as someone with bad credit, he said.
Oberzan offered some guidelines to prevent people from getting in over their heads.
Thirty-five to 36 percent of your gross monthly income should go toward bills, excluding a mortgage or rent payment. A rent or mortgage payment should account for only 28 percent, he said.
"Establish credit, but make sure you pay it in a timely manner," Oberzan said.
- Edited by Julie Jones