Uses of a Credit Score

A person's credit score is provided by credit reporting companies, financial services companies that collect information about borrowers and lenders. This number, compiled using a formula developed by the Fair Isaac Corporation, is between 300 and 850. The reports are composed of information about the individual's credit history, such as debts he has incurred, loans he has taken out and how he has repaid each of these obligations. These credit scores may be accessed and used by a number of different companies.

Legitimate Business Reason

According to United States law, a party can only access an individual's credit report and see his credit score if the party has a "legitimate business reason" for doing so. U.S. law does not specifically define what a "legitimate" reason would entail, leaving it open to the interpretation of the courts. However, there are a number of parties that commonly access credit reports. For example, a company considering whether to lend a person money would have a legitimate reason for checking the score. A landlord preparing to rent an apartment would also have a reason to check a credit report as the score gives him some indication of the person's financial history.

Lenders

The most common group of people who regularly consult credit scores are lenders. Lenders often want to know a person's credit score before offering him a loan, as this will give some indication of whether the person is likely to repay the loan. For example, a mortgage lender considering a home loan for an individual or a bank considering a car loan would want to look at the person's credit score. In addition, the credit score can provide the basis for how much interest the lender will charge him on the loan's principal. A person with a score above 700 is generally considered to have good credit and would receive an interest rate close to the prime rate.

Landlords

Many landlords also regularly review credit scores before they agree to rent to a prospective tenant. This is done for two reasons. First, by allowing a person to stay in an apartment, a landlord is, in effect, extending the person a form of credit. Some rental agreements are structured so a person will not pay in advance. In addition, credit scores may give an indication of the person's financial reliability and how likely he is to pay his rent on time. For example, a high score would likely indicate the person is more likely to pay their rent on time.

Employers

An employer will often consult a prospective employee's credit score before hiring him. Although a person's credit worthiness will likely not have an direct bearing on his ability to perform his job, it may provide the employer an indication of the individual's character. This is because an employer may believe that a person with a higher credit score has honored his debts more often that someone with a lower score, who likely was delinquent or defaulted on some of his debts. This may lead the employer to believe the person with better credit to be more trustworthy and responsible. Some states, however, prevent employers from making hiring decisions based on an individual's credit score, as this may put people with bad credit at a severe disadvantage.