When Will People Check Your Credit?
Your credit score and report are representations of how financially responsible you are. The higher your credit score, the better you handle your money and debts. Having a good credit score can give you flexibility in your finances, but it also can impact most major areas of your life. Many organizations, from banks to landlords, all check a person’s credit before making important decisions. Here are a few of the many different people, situations, and organizations that might call for a credit check.
Some Employers Check Credit Before Hiring
Another group of people that might check your credit report are potential employers. It’s common in some industries for companies to request credit reports of potential hires, and use their credit as a determining factor for applicant eligibility. It’s especially important in jobs that handle sensitive information, either at a company or personal level.
A poor credit report can suggest that a person might have financial problems, or that they aren’t very responsible with their money. If somebody is having financial problems and has access to things like social security numbers or credit cards, they theoretically might be more inclined to steal somebody’s identity and use that information for their own profit.
Some companies might also want people who make sound financial decisions because of the job itself. If a company wants to hire a financial advisor or accountant, it wouldn’t make sense to pursue somebody who can’t handle their own money.
It is important to note that employers cannot request a full credit report, nor do they get a credit score. Their kind of request is a soft inquiry for your credit report. The credit report they get doesn’t have personal information, or account information for things like credit cards or loans. The information they can see, though, is things like payment history and/or mistakes you might have made.
Landlords and their Tenants
If you are looking to rent a home or apartment, it’s pretty common to get your credit report checked by potential landlords. Similar to employers, they can’t get your credit score, but they can get a similar type of credit report. It will block your sensitive personal information, and account information, but they will be able to see your payment histories and other negative elements. This could include missed payments on bills, bankruptcies, or defaulting on loans.
Many landlords won’t accept tenants that have late or missed payments on their report, especially if they were late payments to previous landlords. It’s also possible that the landlord might impose additional restrictions to the lease, such as requiring a larger deposit, signing a longer contract, needing a cosigner on the lease, or regular check ups on the apartment made by the landlord.
Landlords can request either a hard or soft inquiry, though the usual practice is to get a soft inquiry. Only if there is serious doubts about your credit history or financial situation will a landlord request a hard inquiry.
Applying for a Credit Card
Whenever you apply for a credit card, the organization you are applying through is going to check your credit. Every time a credit card is given out, it acts like a short term loan. If somebody makes purchases using a card, but then doesn’t pay it off, the company loses money. That is the inherent risk with giving out credit cards.
When you apply for a credit card, the issuing company will do a hard inquiry into your credit. That means they get a complete report, including personal information, and what is necessary to create a credit score.
Subsequently, the organization is going to check your credit to make sure you aren’t a risk of them losing money. Typically, credit card companies prefer that an applicant possesses above a 600 credit score, and the higher your credit score, the better type of credit card you can get.
The basis for credit card denial isn’t just your credit score, though. When a credit company pulls your credit report, if it shows a history of missing card payments, companies might deny you even with an acceptable overall score.
Getting a Loan
If you are looking to get any kind of loan, expect the lender to check both your credit score and credit report, possibly even pulling multiple reports from different credit bureaus, all of which being hard inquiries. Each type of loan has its own requirements on both credit history and score, but as always, the higher your score, the better off you’ll be.
If you are wanting to buy a home, it’s almost guaranteed you’ll need to get a mortgage loan. By federal law, the minimum credit score requirement is 500, but that doesn’t mean you won’t still get denied if you are above that.
The higher your credit score, and the cleaner your credit report, the more flexibility you’ll have with your mortgage loan. If you have a high credit score (in the 700 range) it’s possible you won’t need to do a down payment, or you might have extra low interest. Since a mortgage loan is one of the largest loans you can get, expect the lender to pull multiple different credit reports.
Car loans are a little more flexible than getting a mortgage, since there isn’t a federal law requiring a minimum credit score to get an auto loan. Auto lenders will still check your credit, but having a low score doesn’t mean you won’t qualify.
Qualifying for a car loan with no credit, or poor credit, might mean having to accept less desirable situations. This includes putting down a larger down payment, higher interest rates, and other unwanted stipulations on the loan.
Getting a small personal loan is one type of loan where lenders are often very critical of both your credit and how much debt you currently already have. Typically, the larger the loan you want, the more critical the lender will be of your credit score. If you already have a fair amount of debt, a strong credit score could be the difference between getting the loan and not.
Banks, Financial Advisors, and Credit Repair Companies
In reality, you can give anybody permission to check your credit, and not everybody who checks your credit will be doing so because you’re getting a loan, a credit card, a place to live, or a job. Many institutions can check your credit, both your score and reports, in order to help monitor or raise your credit. A common service by many banks is to monitor your credit in case of identity theft or fraud and alert you of any potential dangers. This requires being able to check your credit, at least with a soft inquiry.
A common part of financial advisors is helping people build their credit in order to reach their financial goals. In order to do that, they will need to do soft inquiry so they can see what your current credit report looks like.
Your credit score and reports can play a huge role in most major decisions in your life. From getting a credit card, to landing a job, your credit report can either lead you to success or failure. Keeping an eye on your credit report is a good habit to get into. If your current score is low, sign up for a service to actively monitor it (either through a third party or your bank) and work towards improving it. If you are happy with your score, check it at least once a year to make sure everything is well.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated September 15, 2017. It was originally published September 17, 2017.