July 2, 2018
July 2, 2018
Most financial and credit advisers focus on credit and credit scores for lending purposes. But are you aware of the number of potential situations when you may be subject to a credit check that has nothing to do with borrowing money?
Actually, there are at least seven transactions that may require a credit check that don’t have anything to do with loans.
Next time you open up a bank account, read the fine print. It will almost certainly disclose that your credit will be pulled when you open an account. It can be any type of account, but it’s most common with checking accounts.
Banks will run a credit check on you for a checking account to make sure your credit indicates the likelihood that you will maintain the account in good standing. If you have a long history of unpaid bills, they may have every reason to assume you’ll be writing bad checks, and incurring other situations that may end up costing the bank money.
Just about every car rental company requires a credit check when accepting a debit card for a rental. In fact, most are now also running a credit check even if you use a credit card.
When using a debit card, the car rental company has no indication of your likelihood to pay a deficient balance. For example, they’ll put a hold on your bank account for a specific amount, say $200. But if the total charges exceed the amount of the hold, they’ll need to know you’re good for the rest.
A good credit history and/or credit score will indicate they’re more likely to be paid. But if your credit report shows a history of not paying obligations, the company can lose money. This will be especially true if they have to pursue legal action to collect on the unpaid balance. It’s a situation they’d rather avoid.
Renting an apartment is not a loan arrangement, but it is a recurring payment and a large one at that. Like any other business that will have an ongoing payment arrangement with you, the landlord or management company wants to know that you will pay on a consistent basis. Your credit report is one of the best indications. And if that doesn’t provide sufficient evidence, they may even request that you provide copies of canceled checks on your current or previous rental.
A landlord or management company can always evict you for nonpayment. But that’s not as easy an arrangement as it may sound. Eviction is a legal proceeding, that will involve the payment of legal fees, in addition to the unpaid rent. The obligation to could run into thousands of dollars, particularly if you’re two or more months behind in rent.
If the balance is high enough, and you don’t have the funds to pay, it will have to go into collection. It could be years before the landlord or management company is paid, and they may never be paid at all, especially if you file for bankruptcy.
Like everyone else that you have an ongoing payment arrangement with, insurance companies want to know that you will have the willingness to make your premiums on a regular basis, and when due.
It costs insurance companies a considerable amount of money to underwrite and initiate an insurance policy. It will be many months, and sometimes years before they recoup their initial costs. They want to be certain you’ll make the premium payments for at least long enough for them to make a profit on the policy.
There’s one other factor with insurance companies, and that’s risk assessment. A poor credit rating is considered indicative of a higher risk lifestyle. Whether you’re purchasing auto insurance or life insurance, that can affect your premium level, or even whether or not the insurance company issues you a policy.
For example, a low credit score can be an indication of severe personal stress. That might make you more likely to either engage in dangerous behavior or even sustain an illness or injury as a result of being distracted by credit problems.
An increasing number of employers do credit checks on prospective hires. Even though it doesn’t involve you making payments, employers want to know that you will be reliable. A good credit score or report indicates you’re responsible with your personal finances. That’s a strong indication of work-related responsibility.
And similar to insurance companies, employers may want to know if you might be distracted by financial problems. One particular issue for employers is the amount of debt you owe. For example, if you have $50,000 in credit card debt, and you are applying for $35,000 job, they may determine the salary is inadequate to cover such a high debt level. For that reason, you may be rejected for the job.
If you’re getting into a major business deal or going into a partnership, the other party in the arrangement may run a credit check. They may want to know the soundness of your financial situation as determined by your credit report. But it will also be an opportunity to see how responsible you are in managing your finances.
A credit check may even be performed if you’ll be running an ongoing account with a business vendor. They’ll be extending informal business credit, in the form of an accounts payable arrangement, so they may run a credit check to determine your payment history on such arrangements.
If you’re signing up for a utility service you’ve never dealt with in the past, they’re likely to run a credit check on you. This can be for any number of services, including electric, gas, water and sewer, trash removal, cable TV, telephone or even mobile phone services.
None of the providers is actually extending you credit. But they are engaging in an ongoing financial payment situation. They will want to know that you’re credit worthy, and likely to make the payments on a regular basis.
As you can see, it’s not just lenders who are likely to run a credit check on you. Virtually any business you’ll deal with on a regular basis is likely to run a check. That’s why it’s important to maintain good credit, even if you have no immediate intention to apply for a loan.
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