February 25, 2009

Lending

The first and most recognized way your credit score is used is for lending.  Creditors want to review your credit report before lending you any money.  It is a clear indication of your credit worthiness and whether you pay your bills.  There are two other ways your credit report is used but are not often discussed or understood.

Employment

Employers can review your credit report as a form of a background check.  Your credit report gives employers an idea of who they are hiring.  There are no set guidelines that each employer has to follow in regards to what is disqualifies you from a job based on your credit report.  Often, the potential employer just has internal guidelines they follow.  The employer cannot perform a credit check without your permission and must provide you a copy of the report.

The popularity of this type of use of your credit report is done by a large portion of businesses today.  Is this a fair use?  This is a hugely debated topic.  The answer is yes in the eyes of Congress.  Who allow employers to do this under the Fair Credit Reporting Act.

Insurance

Another method of using your credit report is to aid insurance companies in assessing their potential exposure.  It is used by insurance companies to determine your insurability and used to set premiums.

The idea is people who are responsible with their credit are also responsible behind the wheel.  This is also a hotly debated use.  The two sides of the isle argue that there is or isn’t any  connection in your risk while driving based on your credit report.  No matter what you believe it happens.  And was OK’d by Congress also to in the Fair Credit Reporting Act.

Conclusion

The use of your credit report is something you need to recognize and understand.  It has the potential to effect your ability to get a job and get insurance.  These are two things you do not want to mess with.  This makes having a clean credit report one of the important things in your life.