When a particular business wishes to evaluate the likelihood that a client will be able to pay back a loan, it typically runs a credit check on the person. These businesses can be financial institutions that loan money or other types of companies, such as those that provide products or services before compensation has been provided.
Lenders
Most institutions that are considering lending money to someone will generally want to know the person's previous credit history. These institutions include mortgage issuers and auto lenders. A credit history will give the company a general idea of the likelihood that the person will pay back the loan. In many cases, the company will base the rate of interest on the person's credit score. Those with lower scores typically pay more in interest.
Landlord
When a landlord is considering a rental application, he will generally attempt to check the person's credit score. Although the landlord is not lending the tenant money, he is allowing him access to the space, with the proviso that the tenant pay rent in advance each month. If the tenant fails to pay, the landlord may be forced to go through a time-consuming and expensive eviction proceeding. By taking only tenants with good credit scores, some landlords hope to prevent this from happening.
Insurance Companies
Insurance companies use a number of factors to determine whether the people they cover will be likely to incur a claim against the company. Generally, insurance companies will base the rates they charge clients based on the estimated likelihood that the person will force the insurance company to make a payout: those with a higher likelihood generally pay higher rates. Some insurance companies use credit scores to calculate this.
Cell Phone Companies
Cell phone companies typically bill clients at the end of each month for the charges incurred during the previous month. While some companies bill ahead of time, most set their rates so that the customer may incur additional fees each month depending on how he uses the phone, meaning those charges cannot be pre-billed. Before issuing phones, many cell phone companies will check the credit score of clients: those deemed a high risk of missing payments may be asked to put down some form of collateral.
Employers
Many companies that hire employees choose to run a credit check on prospective hires. Although some states have regulations against using a person's credit score to discriminate against her for a position, many do not. The employer may use the credit check to get a better understanding on the job candidate's background as well as a sense of his ability to be responsible.
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