How are Credit Reports and Scores Used?

Why are credit reports and credit scores so important?  Many businesses use them to make decisions about you.   They believe that how you have paid your bills in the past indicates how you will pay your bills now and in the future.

So how are credit reports and scores used?

  • Credit card companies use credit reports and scores to approve you for a credit card.  Your interest rate may also be based on this information.
  • Banks and credit unions may use your credit reports and scores to determine whether you can open an account (including savings or checking accounts) or get a loan.
  • Auto and mortgage lenders may use your credit reports and scores to determine whether you qualify for a loan. The interest rate and fees you pay may also be based on this information.  Using credit report and score information to set your interest rate is called risk-based pricing.
  • Landlords may use credit reports and scores to figure out whether they will rent an apartment to you.  They may also use this information to set your deposit.
  • Utility companies may use your credit reports and scores to decide whether you will have to pay a security deposit and how much that security deposit will be.
  • Cell phone companies may use your credit reports and scores to determine the plans you qualify for and whether or not you have to pay a deposit.
  • Insurance companies may use your credit reports and scores (specialized for the insurance industry) to determine whether they will cover you and the premiums you are paid.  Some states do not allow this practice, but others do with limitations.  To find out your state’s rules, contact your state insurance commissioner.
  • Employers use a modified version of credit reports as part of their background checks for potential employees.  Between 50% and 60% of employers are estimated to use credit reports as part of the hiring process.
  • Professional licensing bodies may use your credit reports and scores as a factor in determining your eligibility to be licensed.

Having negative information on your credit reports can prevent you from:

  • Getting a loan
  • Qualifying for a credit card
  • Getting an apartment
  • Getting an affordable cell phone plan
  • Having an manageable security deposit for utilities, cell phone plans, or apartments
  • Getting insurance coverage (in some states)
  • Getting a job
  • Having good credit scores

Find out more about credit reports and scores and ways to improve them.

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