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Everyone Else Knows Your Credit Score

by Contributor

Do you know what your FICO credit score?

If you’re employed, your employer probably knows. In fact, if you are working, living in an apartment, using a cell phone, or insuring your car, house, apartment, etc… all those companies have checked your score.

If you’re wondering why they’re checking your score, you aren’t alone. A lot of people are asking these questions, especially with unemployment up and incomes down. Unfortunately, companies are also in a similarly difficult financial position and many are turning to credit scores to find an edge.

Here’s why companies use your credit score and credit history:

  • Employers: Whether it’s right or wrong, employers believe that financial health is a good determinant of whether a potential employee will steal. Reviewing a credit history has become standard in background investigations, especially if they are security related, because someone in difficult financial shape may be tempted by bribes. While bankruptcy can’t be a factor in a hiring decision, everything else in the history is fair game.
  • Insurance companies: It’s unclear why insurance companies use credit in their decisions but the fact they do is very clear. The lower your credit score, the higher your premiums will be. For whatever reason, their actuaries have determined that lower scores mean more claims.
  • Landlords: Landlords have been checking credit scores and histories since the beginning of time because they’re essentially “lending” you the value of rent each month. If you’re unable to regularly meet other obligations, you might not be able to make rent and that’s a problem. This same logic applies to service contracts, like cable or cell phone service.

While you don’t necessary need to know your credit score, it’s important that you review your credit history so that your score is as accurate as possible. It’s being used in places you probably didn’t expect and in places it was never intended for. Keep your nose clean. :)

This is a guest article by Jim, who writes about personal finance at Bargaineering.com.


Published or updated January 28, 2010.
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{ 7 comments… read them below or add one }

1 Hank

The military also uses credit scores to determine what type of security clearance (secret, top secret, etc.). Being too much in debt limits the type of job you can hold, whether you can go to OCS and become an officer, your security risk “to steal” secrets, and how much pressure you might be under to give up those secrets. If you are severely in debt with bad credit, you may not be allowed to continue in the military, join to begin with, and your job prospects are severely limited.

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2 Ryan

very good point, Hank… I actually wrote about how Excessive Debt Can Ruin Your Military Career on my other site.

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3 MoneyEnergy

Makes sense for business transactions like renting, perhaps, but an employer checking it is crossing the line, it seems to me. Reminds me of the recent story of the 47 yr old law grad who studied 17 times for the bar, failed 16 of those – and almost had a new lawyering job until they saw he “had too much debt”! This was pretty rare, in the legal world, to discriminate against their top candidate for his own personal financial reasons. I hope the guy finally got a job somewhere, he deserves it.

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4 Jill

I was going to say something along the lines of what Hank said, but I figured being prior military you probably knew some of that anyway :) I have to say though, that I never cease to be amazed by the amount of troubles some of these young men and women get into–my husband is a LT in the Navy and some of the things he deals with are unbelievable…and it sure doesn’t help that we have two casinos in very close proximity to our base!

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5 Curious Cat Investing Blog

It does seem like those using credit scores are stretching the sensible use of them. Once problem is I highly question the ability of most companies to think of it as one factor. I would not be surprise all sorts of them have some arbitrary cutoff numbers. Even when it is useful it is only one measure and a fairly odd one in many ways (like that it pays no attention to the assets you have).

Once insurers figure out that low credit scores correlate with poor insurance risk it is certainly understandable that they want to use that factor in their decisions. It may not seem “fair.” Many things about insurance are not fair. Plenty of young drivers are responsible, safe and accident free. But since many people of that age are irresponsible and accident prone all young people must pay more for care insurance.

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6 Ryan

From what I understand, many auto insurance companies already look at your credit when making a decision on rate quotes.

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7 fredct

The employer, IMHO, has a vested interest in knowing your score, especially if you handle money such as in retail or finances. Someone deeply in debt would be more tempted to steal or embezzle.

Likewise, if you work in a job that has access to ‘company secrets’ someone deeply in debt would be more easily bribed to give away that information. That’s the same logic as to why the government checks you for clearance jobs. It may not be quite as life and death, but it is very important for the company. If KFC hires someone who sells their secret blend of herbs & spices to pay off their credit cards debt (a silly, but relevant example), the company is in trouble.

Auto insurance is more of those ‘who knows why but it works’ things. People with high credit scores tend to have lower rates of claims. It could be because they have better financial resources and won’t claim as many little things. It could be because someone who is responsible with money is more likely to be ‘responsible’ with other things in life, such as driving. It could be something else, or it could be some combination of all of them. It’s not really ‘fair’, but it works and that’s why it’s widespread.

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