How Credit Impacts Your Day-to-Day LifeAdvertiser Disclosure
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.
Find Out Where You Stand
You can check your credit each month using Credit.com’s free Credit Report Card. This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems. In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.
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Apartments & Rental History
Your credit report will typically be reviewed by a prospective landlord or rental agency. They are usually looking for a pattern of missed payments or other negative information on your credit report that indicate you may not be a responsible tenant. If you have bad credit, you may be required to put up a larger deposit or get a co-signer, or your rental housing application could even be turned down. In addition, each time your credit is reviewed it will create an inquiry that can affect your credit scores, so be careful about applying at several places at once.
Traditionally, on-time rent payments did not help your credit because they weren’t reported to credit reporting agencies. But there has been an effort to change that. An increasing number of property management companies and landlords now report positive rental history, which can in turn help build credit. If your landlord does not currently report your rent payments, you can suggest they use a service such as RentTrack which will allow you to pay your rent online. Those rent payments can then be reported to your Experian credit report via Experian’s RentBureau.
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 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 down payment 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.
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.
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 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 & 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.
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.
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.
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.
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.