Your Credit Report Isn’t Just for Loans

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Learn more about the surprising ways your credit score can be used against you.

This article by Emily Guy Birken comes from MoneyNing

We all know that our credit score can help determine loan eligibility and interest rates. After all, credit scores are an indicator of how well you handle debt. But if you’re not in the market for a mortgage or a personal loan, it’s easy to assume that your not-so-hot credit can’t really hurt you.

The truth is, lenders and banks aren’t the only ones checking credit reports and making decisions based on your credit history. Even if you have no plans for new debt, ignoring your credit score can hurt you.

Here are three surprising ways your credit report could be used against you:

1. Automobile insurance

While the practice is somewhat controversial, auto insurance companies in most states use driver credit scores to help determine the premium costs. The reason behind this seemingly unrelated factor is that studies have shown individuals with high credit are less likely to make auto insurance claims. While your age, where you live, and the amount you use your vehicle are all going to be bigger factors in the price of your premium, having good credit can qualify you for smaller premiums than other individuals in your same circumstances.

It is important to note that this common auto insurance practice may soon be facing some opposition. House Rep. Hansen Clarke of Michigan proposed the Ban of Credit Scores in Auto Insurance Act in July 2012. If this bill passes, it would make this practice illegal nationwide. Until that point, however, poor credit will mean costlier auto insurance premiums.

2. Rental agreements

One of the many pieces of information a prospective landlord will find out about you is your credit report. While the score is simply a numerical assignment of your creditworthiness, your report is a much more comprehensive document, giving your payment (and even eviction) history. By running this report, a landlord can determine whether or not you are a good risk for their property. If you make a habit of paying your bills late, you may find it more difficult to get an apartment.

3. Job prospects

Increasingly, companies are using credit reports to help decide which candidate to hire. While employers doing this sort of background check do not have access to credit scores for pre-employment checks, they can gather a great deal of information from the credit report itself. In particular, employers are hoping to see that you do not have any outstanding judgments (such as a lawsuit), that none of your accounts are actively in debt collection, that you have not filed for bankruptcy, and that you have a reasonable debt-to-income ratio.

Not all types of employment will use credit checks to make hiring decisions. You are more likely to see this sort of check if the job involves sensitive information, financial responsibilities, or access to confidential employee information, or if the job represents a high level of responsibility for the company as a whole, such as a CEO or CFO position. For obvious reasons, employers looking for these types of personnel want to know that their prospective employees are not under financial stress that could put them in a compromising position.

The bottom line

Your credit score and credit history are an important part of your financial history. Many organizations legally have access to this information and can make decisions about your financial future based on them. Take good care of your credit, and you will never find your score and report a barrier to things you want to do.

Stacy Johnson

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