Who Checks Your Credit Report?
It's conventional wisdom: You build credit to get more credit. Your credit history determines whether you can even get that credit card, mortgage, or car or small-business loan. Then it directly affects how much you'll be paying in interest for years to come. What conventional wisdom often ignores is that even nonborrowers need to keep track of their credit records. Plenty of financial players besides lenders care about your past.
Housing rental companies
Aleris Rodgers is far from financially irresponsible. Throughout college she had never defaulted on any payments and stuck to paying with cash or debit card for everyday purchases. But when she and two friends applied for an apartment in Washington, D.C., last year–even with two cosigners–they were turned down. The reason, they later found out: Rodgers had no credit history.
Bad credit can diminish your choices in the rental market, but in cities where landlords can pick and choose their tenants, even having no credit history can prove inconvenient. To rental companies, an applicant with no credit history just isn't worth the risk, as Rodgers found out. She and her friends eventually found an apartment, but Rodgers learned her lesson; soon after, she signed up for a credit card.
Prospective employers
The Society for Human Resource Management reports that 96 percent of companies do background checks. Keeping your financial record clean could mean the difference between getting hired and not. Not surprisingly, credit checks are more common at banks and the like, but there is no one standard for checking histories among different industries. While one defaulted payment isn't likely to raise red flags, a history of irresponsibility may, especially because most companies are screening applicants for productivity problems caused by major debt or for the likelihood of theft. How often does bad credit eliminate an applicant from hiring consideration? "All the time," says Johnny Taylor, the human resources manager at IAC/InterActiveCorp.
Insurers
Much as lenders do, insurers routinely base their premium rates on credit histories. Whether it's for car, health, or homeowner's insurance, these companies hold fast to their belief that credit is the best predictor of whether someone will file a claim in the future. For car insurance, for instance, 82 percent of insurers use credit when deciding to accept applications for coverage, according to a 2004 report by the Texas Department of Insurance, and when determining rates, they often rely on credit scores even more than the applicant's driving history. Good credit can equal significant cost savings when it comes to insurance.
Cellphone and utility companies
Bad credit often leads to trouble when applying for even the most basic of services. If your report shows a habit of defaulting on payments, some providers–from gas and electric to cellphone–will deny you service outright. And if they do accept your application, you'll probably be forced to pay a significant deposit, find a cosigner, or pay higher rates. Not all utilities and phone companies check credit, but it doesn't hurt to ask if they do.
More about credit:
• Building Good Credit: A Guide for Young People and Parents
• Putting Teens on the Path to Good Credit
• Credit in College: Easy to Get, Easy to Ruin
• Credit Reports and Scores: FAQ
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