Your credit score is a very important bit of information that tells a lot about you. A credit score tells lenders about the likelihood that you will pay them back on time. But it is also used by employers, insurance companies, government, and landlords. Here is a summary of how and why each of these entities uses your credit score.
Of course the most obvious user of your credit score is the person trying to make a decision as to whether or not to approve your loan application. If you are turned down for a loan, make sure to ask the lender what your credit score was. Credit scores are more readily available to lenders than they are consumers.
Because of a tighter job market, employers have increasingly used more criteria for selection of candidates to hire. Thus they have been checking candidates’ credit scores. Yes, it may have nothing with your ability to do a job but the employer thinks otherwise. Their assertion is that employees with lower credit scores are under more financial stress and will a lower level of performance.
It seems unfair that in today’s shaky economy with numerous job losses, loan defaults, and foreclosures that employers can put this additional hurdle for re-employment. States like Washington and Hawaii prohibit employers from using your credit score in their hiring decision. Legislation has been introduced in the U.S. House of Representatives (H.R. 321) that would require employers to stop using consumer credit scores for adverse hiring decisions but the bill has several steps before it becomes law.
Insurance companies have risk departments where they use studies and statistical data to set premiums. These same companies believe that those who have higher credit scores are also those who are responsible in all areas of their lives. Thus, do not be surprised if you are assigned higher rates for auto and homeowner’s insurance due to your credit score. Many take the position that this is unfair and one has nothing to do with the other but, just like the competitive job market, insurance companies are always looking for new ways to set rates so that they can remain affordable for the majority of consumers.
The U.S. Government uses credit scores when applicants are seeking jobs where they have access to sensitive information. These jobs will require a security clearance and background investigation which will include a credit check. The logic behind this is that those with low credit scores and high debt are susceptible to bribery. Historically, there have been several people with access to classified information who took the bribes because they had financial problems.
Landlords sometimes use credit scores to determine if a potential tenant is a risk for not paying their rent or being irresponsible with their property. Although with landlords it is a little different because they only use the credit score as one piece of a bigger pie. In other words, an applicant may be young and not have a credit history or the person may have several credit cards with no balance. Landlords oftentimes will check the credit score and if it indicates high risk then they will ask the applicant further questions as to what might have impacted their score (such as high medical bills due to a catastrophe).