Secondary Use of FICO Scores

Your FICO score, named after the proprietary scoring system created by the Fair Isaac Corporation, is a measure of how well you manage your available credit. When you apply for a credit card or home or auto loan, lenders look at your FICO score to determine whether to extend credit to you, how much you should get and what interest rate you should pay. While this is the most common use of your FICO score, there are also secondary uses as well.

How Your FICO Score is Determined

Fair Isaac Corporation uses the information in your credit report to develop a score between 300 and 850, with a higher score indicating better credit management. The score is weighted, with 35 percent dependent on your payment history, 30 percent dependent on how much you owe, 15 percent based on your credit history, 10 percent dependent on how many new accounts you have or how often you open new accounts, and the final 10 percent dependent on what types of credit accounts you have. Late payments, defaults, large debts and a short credit history can cause your score to decrease.

Insurance

The insurance industry uses credit scores along with many other factors to determine the risk of issuing you an insurance policy. Insurers use your credit score to determine how likely you are to file a claim, with the prevailing thought being that people with higher credit scores are more responsible and thus less of a risk. According to the Federal Trade Commission, homeowner's and auto insurance companies are the most likely to consider your credit score in determining whether you receive a policy and what your premiums are. The "ConsumerMan" column on MSNBC.com notes that insurance companies do not rely solely on a FICO score and instead create their own "insurance score" based on their own criteria.

Utility Companies

Phone companies, gas companies, water companies and electric companies may run a credit check on you before instituting service. These companies want to determine the risk that you will default on payments to them. Having a low credit score could mean you are required to pay a deposit or add a co-signer to your account.

Employment

Employers often include credit checks as part of a background check for potential hires. Though researchers at Eastern Kentucky University found no link between credit history and job performance, credit checks on potential employees are common. The checks may be more commonplace for jobs that involve handling money, because having large debts or having trouble paying your bills may make potential employers see you as a bigger risk for committing theft or fraud. Using credit scores as part of employment screening is controversial, and as of 2011, there have been attempts at both the state and federal level to limit or ban the practice.