Credit Impact

Credit influences many things that affect our daily lives, including our home and job. In this article we look at when and how credit is used. Prepare your credit for apartment hunting, job applications, insurance shopping, and opening new utility accounts.

• Apartments – Your credit report is often pulled by a landlord or rental agency as part of the review process. These people are mostly looking for major negatives on your credit report that show you may not be a responsible tenant. They will also check that the name, address, and employer on your report match what you put on your application. You could be denied an apartment required to pay higher rent. You could also be forced to put down a larger deposit or to use a co-signer because of information on your credit report. Inquiries from rental applications do not damage your credit score.
• Auto loans – Your credit score commonly influences auto loan rates available to you. Most auto lenders do not fully review your credit reports and financial history; instead, they rely on your score and some basic application data. If you have a high credit score (750+), you will receive the best loan deals available (sometimes as low as 0%). However, even people with major credit issues can usually be approved for an auto loan, though at very high rates. The best auto loan rates are granted from online lenders and credit unions, not auto dealerships. It’s a good idea to limit the number of loans you apply for since inquiries from auto loan applications can lower your credit score.
• Cell phones – Cell phone companies will check your credit score before deciding to grant you a service plan. People with credit issues may be asked to put down a large downpayment or pay extra for a service contract. There are cell phone services available that do not require a credit check. Some contracts include terminology that allows the company to review your credit at any point. Be aware that a cell phone application inquiry will appear on your credit report and can lower your credit score.
• Checking accounts – Banks will not check your credit report during the checking or savings account application process. However, most banks will review your ChexSystems report before granting you a new account. This report is not based on your credit file, but instead includes records of bounced checks or other banking negatives.
• Child support enforcement agencies – Child support enforcement agencies can check the credit histories and child support payment records of delinquent parents. While the inquiry will not appear on your credit reports and will not damage your credit scores, child support non-payment is reported by these agencies to the credit bureaus. Non-payment can damage credit scores.
• Credit cards – When you apply for a new credit card, the company will review your credit score to see if you qualify and what terms you should receive. Some credit card offers have different rate options for borrowers with different credit standings.Others have one set of requirements for opening the account. Usually rewards cards and cards with low APRs require the highest credit scores. Secured and pre-paid cards accept borrowers with credit problems. Credit card companies often review the credit scores of existing customers and in turn may adjust their rates. Credit card application inquiries can lower your credit score.
• Employers – Employers must get written permission before they can review an applicant’s credit report. Usually employers review your credit report for major negative records or discrepancies. If an employer decides to take “adverse action” based on information your report, he or she must notify you first and provide you with a copy of your credit report. Employers can also check the credit reports of existing employees, as long as they previously disclosed that they may take such action. When an employer checks your credit report it does not negatively affect your credit score.
• Government assistance and licensing – Technically, any government agency can access limited information from your credit files without your permission (name, address, former addresses, current and former employers). Thorough credit checks may be required if you are applying for government assistance or specific licenses.
• Insurance – Home and auto insurers commonly use consumer credit information along with your application data in determining rates and terms. In fact, more than 90% of auto insurance companies now use credit data. The reports and scores used by the insurance industry are slightly different from what is used by creditors and lenders, but your basic data and standing should be the same. After asking for your permission, the insurer will pull your credit data to calculate your “insurance risk score.” The higher your score, the better your insurance rates may be. This credit inquiry will appear on your credit report but does not usually harm your credit score.
• Mortgages – Mortgage lenders usually review all three of your credit reports and credit scores as part of the application process. In most cases, a mortgage loan is much larger than an auto or student loan, so the review process is much more detailed. In order to receive standard mortgage interest rates, your credit scores should be above the 700 range. Mortgage applications will appear on your credit reports and can lower your credit score.
• Student Loans – Federal student loans do not require a credit check since the interest rates on these loans are set based on national rates. When you consolidate federal loans, the new lender will not check your credit report. Only with private student loans or in a few specific situations may credit checks be required for student loans.
• Utility Accounts – Electricity, cable, and other utility companies may check your credit report with your permission when determining your rates. People with credit issues could be required to put down a deposit, add a co-signer, or pay higher rates for their utilities. In states with community property laws (such as Arizona, California, and Texas) the utility company may even check your spouse’s credit history as part of its evaluation. Inquiries from utility applications do not harm your credit score.