Who is checking your credit? More people than you realize
Who is checking your credit? More people than you realize
When Jason Craine went into a local music store to rent violins for his twin boys, he wasn’t expecting anything out of the ordinary.
What he got instead: a credit check.
“I was caught off-guard,” says Craine, a financial advisor in Wichita, Kansas. “I understood why, but I just wasn’t expecting it.”
Ultimately, he decided to buy the violins outright, and his boys are now making good progress in fifth-grade orchestra. But Craine is not alone in being shocked at when and where a credit record can come into play.
When it comes to car loans, mortgages or new credit cards, everyone knows your credit history is going to get pulled. But there are plenty of other occasions, too, where your payment history will get put under the microscope – and you would be wise to know what those circumstances are.
Of course, not all credit checks are created equal. Some are called ‘hard’ pulls — if you are applying for a loan, for instance — and could negatively impact your score, at least in the short term. Others are ‘soft’ inquiries — such as checking your own record, or if a company is extending a pre-approved credit card offer — and won’t drag down your numbers.
Current, a consumer fintech banking platform, highlights a few examples of credit checks you might not even realize are happening.
Insurance Policies
Before you sign any contract, your insurer is going to want to know how likely you are to pay those premiums. And in most states, that likely means a credit check.
“One of the most frequent times a credit check comes into play is when applying for any type of insurance — life, auto, disability,” says Rodney Loesch, a financial planner with LifeGoals Strategies Group in Lee’s Summit, Missouri. “It can make a big difference in the rates you pay, or even if you are approved at all.”
There are, however, some areas that restrict the use of credit information in putting together auto or homeowner’s policies. Those seven states are California, Hawai’i, Maryland, Massachusetts, Michigan, Oregon, and Utah.
Utility Companies
If you’re moving into a new place and need to set up the basics like gas, electricity, or water, you’re essentially asking that utility for a line of credit. That’s why they may want to check your credit history (although it’s considered a ‘soft’ pull that won’t damage your score).
Your credit history often comes into play when the utility company is determining whether or not they’ll require you to put down a security deposit. If you have a stellar credit record, you may not have to put any money down initially; if you have a poor one, they may ask for a deposit up front before extending service.
Job Applications
Generally speaking, under the Fair Credit Reporting Act, a potential employer is within their rights to ask for your credit history, although it does require written consent. This can even happen at a company you’re already working at — for instance, if you are being considered for a promotion.
That being said, some states have additional laws that restrict or ban employment-related credit checks — among them California, Connecticut and Colorado. Some cities do as well, a primary example being New York City.
Sometimes there are exceptions to those restrictions — such as finance-oriented jobs that involve the handling of money, where credit information becomes critical.
Rental Apartments
Landlords want to know how likely you will be to pay your rent on time, which means digging into your credit history. In general terms, a FICO score of 670 or above indicates the level of “good creditworthiness” that will appeal to property managers.
If your score needs a boost to meet requirements, you might want to consider a secured charge card. Secured cards may help you build your credit history within months, but you’ll want to be sure you pick one that reports to all three major credit bureaus (Equifax, Experian, TransUnion). These cards allow you to draw from your available balances only (therefore minimizing risks of debt), and the funds you spend are held to ‘pay your bill’ each month. These are then on-time payments reported to the credit bureaus.
However, in this competitive rental environment, it might not be good enough to have decent credit. The site RentCafe compiled a “Rental Competitiveness Index,” and found that “American renters experienced a highly competitive market this year” — with Miami being the most challenging location of all.
In other words, you want to have better credit than all of the other applicants, since the landlord can choose whom to approve. That means, the higher the score, the better.
Knowing all the different scenarios that require a credit history will give you a fuller understanding of just how important it is — and more motivation to clean it up, and boost that score higher.
And if you want to know who exactly has accessed that information, you can certainly find out: Request your free report at AnnualCreditReport.com, and it will tell you about all credit inquiries.
“The difference between excellent credit and average credit can cost you tens of thousands of dollars in higher interest over a lifetime,” advises Craine. “That’s why it’s important to guard your credit carefully, and understand when it’s being checked.”
This story was produced by Current and reviewed and distributed by Stacker.
