When most consumers think of credit, they think of loans. Credit plays a huge role in whether or not someone is approved for a loan, as well as what the financing terms are.
However, a credit history influences more than loan approvals and interest rates. The Consumer Financial Protection Bureau (CFPB), in a December 2012 white paper, points out that the information collected by credit agencies is used in a number of non-credit financial decisions:
1. Insurance Premiums
Insurance premiums are set, in part, by consumers' credit histories. "Credit score is pretty much universally used to determine premiums nowadays," says Greg Hamblin, an insurance broker with Hamblin Insurance. While Hamblin says that life insurance premiums aren't usually set with the help of credit history, most property and casualty (particularly auto) premiums use a special version of the information in consumer credit histories known as an "insurance score."
Consumers without good credit pay more for their insurance, regardless of other factors. "For some companies, the discount on insurance is as much as 38% for the best credit scores," Hamblin says.
2. Hiring Decisions
While potential employers aren't supposed to look at applicants' credit scores when hiring, they can -- in states where it isn't prohibited by law -- ask to view a credit report as part of the screening process. A survey from the Society for Human Resource Management indicates that nearly 60% of its member employers use credit reports as part of the background screening for at least some positions.
For the most part, positions that involve a fiduciary duty, or some level of access to sensitive information, are the jobs most likely to require a credit check as part of the hiring process. However, a recent survey by Demos indicates that even some entry-level applicants are subject to credit screening.
3. Rental Opportunities
The Federal Trade Commission (FTC) provides guidelines for landlords who want to use consumer credit reports as they make decisions about tenants. If an applicant has poor credit, the landlord can require a co-signer on the lease, require a larger security deposit, raise the rent, or even deny the housing application. Consumers with poor credit can find their rental choices limited, as well as find that it costs them more to pay for their housing.
4. Telecommunication Services
Internet services providers, cell phone providers and cable/satellite providers all use your credit information to make decisions. "Most service providers look at credit scores when you open a new account," says credit expert Steve Ely, CEO of eCredable.com. He previously was president of a division of the credit agency Equifax.
"When you walk into the AT&T store to buy a new phone, they check your score to determine if they should ask for a deposit," he explains. "Your credit score will even determine the size of the deposit, if they decide they need one from you. The same rule generally applies to satellite, cable, and Internet providers."
The lower a consumer's credit score, the greater the chance that he or she will be subject to a deposit when seeking telecommunication services.
5. Checking Accounts
The CFPB points out that some banks look at a credit report prior to allowing consumers to open checking accounts. One of the most commonly used reports is the ChexSystems report, which compiles information on consumer banking behaviors, particularly overdrafts and bounced checks. However, there are banks that check depositors' credit scores before allowing them to open checking accounts. If a consumer has a low score, he or she might be required to open a checking account with a monthly fee, or with restrictions.
Even consumers who don't plan to apply for a loan need to pay attention to their credit. Credit reports, and even credit scores, are used by a variety of financial service providers, and poor credit can cost consumers hundreds of dollars, a place to live, and even a job.