Importance of Credit Scores

As a Mortgage Agent, I have learned a lot about the importance of a credit score. It is the most important factor considered in relation to whether or not a person can qualify for a loan, and at what interest rate. But is it also the most important factor considered in hiring an employee?

Having a poor credit score can result in lenders charging you a significantly higher interest rate on your loans, as well as up front financing fees. Many lenders may even refuse to loan any funds, which could prevent you from the opportunity to own a home, or start a business. The current interest rates may be the lowest ever, but the requirements for qualifying for these loans have never been stricter.

I do believe that if more people understood just how much having a bad credit score can cost them, in actual dollars, they would reconsider their actions. However, not all bad credit scores are the result of over indulgence and poor planning. People can also experience many personal hardships, that leave them temporarily unable to cover their ongoing expenses.

For this reason, it is important to explain any irregularities in your credit report. If the lenders understand that there were situational difficulties that led to the disruption in payments, they can be more forgiving. It is also important to advise your mortgage broker or lender if you are experiencing difficulties, before you miss any payments. The lenders may negotiate a new payment schedule, that would allow for the temporary disruptions.

It is understandable that lenders are interested to know how well you pay your bills, as they need to assess whether or not they trust you to pay them back. Past behaviour is assumed to be predictive of future behaviour. If you lent money to a friend, and they never paid you back, would you lend to them again? It really is that simple, and your credit score is a very simple and convenient number that answers that question.

Our current human rights legislation prohibits many forms of discrimination, but there are no restrictions on what factors a lender can consider when deciding whether or not to loan funds. The benefit of receiving a loan is viewed as a privilege, and it can be denied for any reason. `He who has the gold makes the rules‘. It is the lender’s money, and they can choose where to invest it.

When it comes to hiring employees, however, the human rights legislation is far less tolerant. The benefit of a job, although still a privilege, is so vitally important to one’s ability to provide a living for themselves and their family, that it approaches the arena of basic human rights. The Ontario Human Rights Code prohibits discrimination in employment on the grounds of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, age, record of offenses, marital status, same-sex partnerships, family status and handicap.

But what about credit score? Is it justified for an employer to request permission to view your credit score, and factor in your bill paying habits as a consideration in deciding whether or not to hire you? Surely one’s ability to pay bills on time would be hampered by not having a job, so it is difficult to imagine that same factor being used against them when applying for a job.

It does happen though, which is one more reason that you do need to ensure that you maintain a healthy credit score.