When Are Credit Checks Done?

The federal Fair Reporting Act and state laws regulate who can have access to your credit report. Your credit report contains highly confidential information about you (including your Social Security and telephone numbers), and many people can gain access to it. There are two types of credit checks (also called "credit pulls"). "Soft" credit pulls appear in your credit history but do not affect your credit score. "Hard" credit pulls can negatively affect your credit score, causing your credit score to drop by as much as 5 points for each one.

Credit Cards

Your credit card company can periodically pull your credit report without telling you.

Every time you apply for a credit card, the credit card company will pull your credit. Credit card companies can also run a credit check without notifying you when they are sending you a pre-approved credit application. They are also allowed to periodically run soft pull credit checks in monitoring your account. If your credit score has dropped, they can raise your interest rate, even if you are in good standing with them.

Employment

Credit reports are keeping the unemployed, unemployed.

An estimated 43 percent of employers and potential employers run credit checks on applicants and employees, although they do need your written consent. Job applicants who decline to give their consent are frequently taken out of consideration. In January 2011, Representative Steve Cohen (D-Tenn.) introduced a bill in Congress that would prohibit credit checks in employment screening, but it has not become law.

Loans

Financial institutions routinely pull credit reports when processing loan applicaitons.

Any time you apply for a loan for a car, a house, an equity line of credit, a business loan or almost any other kind of loan, the financial institution will run a credit check. Your credit score is the primary consideration in the decision to approve the loan. The better your score, the better the terms you will likely be offered.

Insurance

Some insurance companies consider your credit score more important than your driving record.

Over 90 percent of auto insurance companies will run a credit check before issuing a policy. They use your credit score in a formula to calculate your insurance risk score. Insurance companies claim that there is a correlation between credit scores and the likelihood of the insured filing a claim. Many claim that the credit score is more important than the driving record. The same applies to property, life and health insurance. Insurance companies will use this score not only to decide whether to insure you, but also what your premium will be.

Renting a House

Every time you fill out a rental application could mean another inquiry on your credit report.

Whenever you apply to rent a house or apartment, your landlord will most likely run a credit check through a credit-reporting agency. They can also charge you a fee for running the credit check whether or not you end up renting the apartment or house. Having a low credit score can cause them to turn down your application or it can affect the amount of security deposit they will require.

Utilities

Utility companies can deny service based on a poor credit score.

Utility companies are legally allowed to run credit checks on those who sign up for service. They use credit history information to determine whether they will provide service, and if so, the amount of security deposit you will be required to pay.