Why Do They Need to Check My Credit?

You already know that potential creditors, like mortgage lenders and credit card issuers, review credit history reports and credit scores as part of the loan approval process. They want third-party confirmation that you repay debt obligations consistently. But why would an employer, landlord, service provider, or other company who is not extending credit want to look at your personal financial information?

Read on to discover the answer.

Employers

Potential employers may ask you to do more than complete a lengthy job application, depending on the position. Some require independent assurance that you're a responsible individual. One way to confirm that is by looking at the way you handle your finances. A credit history report that shines with on-time payments could help tip the hiring decision in your favor.

Some government agencies require a credit check as part of their employment screening process. In such cases, credit information is a tool for determining your character and suitability for a job. If you’ve been financially irresponsible in handling debt or have previously filed for bankruptcy, another applicant with a better track record may be chosen.

Even current employers may check your credit before issuing you a corporate credit card to purchase business-related items. If you have poor credit, your employer might decide against granting you credit privileges tied to company funds because of the higher risks involved.

Landlords

It's no surprise that landlords want tenants who will stay in the property for the entire rental period. Your credit history can reflect how likely you are to default on your lease agreement. If you were recently evicted for nonpayment of rent or have several credit delinquencies, your credit score would be negatively impacted. This could hamper your ability to secure housing.

Landlords are more likely to choose lower-risk tenants who have higher credit scores and can make on-time rent payments. Some states even require landlords to run a credit report before leasing property to a potential tenant.

Service Providers

Utility and mobile service providers use your credit data to determine the likelihood that you'll pay your bills and pay them on time. If you have collection activity from your last utility company or mobile provider, services can be denied or require a larger upfront deposit.

Current Creditors

Your credit card issuer will likely review your credit report before increasing your credit limit or lowering your interest rate. Since months or years may have passed since you first opened the account, the creditor wants to make sure that you're still a reasonable credit risk. If you have a recent history of late payments or other adverse credit behavior, they might not be willing to extend additional credit or adjust the rate.

Banks and Credit Unions

Financial institutions will check your credit through Experian, Equifax, or TransUnion when you apply for a line of credit, loan, or credit card. Some banks and credit unions may run the same type of credit check when you open a checking or savings account.

Most banks and credit unions use ChexSystems®, a different type of consumer reporting agency. A ChexSystems® review will reveal negative banking activity, like suspected check fraud, frequent overdraft fees, or outstanding negative balances.

Insurance Companies

Lower insurance premiums are linked to good credit. Insurance companies use both credit and insurance scores when deciding whether to provide coverage and for figuring policy rates. Research studies show a relationship between responsible money management and reduced insurance claims. Bottom line - a healthy credit score could result in lower insurance rates.

Remember that you're under no obligation to disclose your credit history to anyone. You can always refuse to authorize access to your credit information. But allowing companies to confirm your good credit could open the doors to low-cost services, housing, and employment opportunities.