Editorial Policy

Bad credit? Getting past that dreaded credit check

Allie Johnson

August 5, 2015

Of course lenders pull your credit when you apply for a car loan, a mortgage or a new credit card. But you might be surprised at the number of other life events — big and small — that also require a credit check.

From apartment hunting to snagging a dream job to switching cell phone companies, your credit history can make the difference between easily getting what you want and either missing out, paying more or having to jump through hoops.

Here are five times when your credit might get pulled and how bad credit can affect your ability to get what you want:

1. Renting new digs. If you've got your eye on an adorable apartment, a luxurious loft or even a humble home, you might need decent credit to move in, says Maurice Ortiz, director of operations for Apartment People, a company in Chicago that helps renters find apartments. Landlords and rental management companies typically check your credit history and look at a combination score from the three major credit bureaus, Ortiz says. “The higher, the better,” he says, of credit scores. Most landlords look for a score of at least 650, but you still might be able to snag a place with a score in the low 600s or even the 500s.

Your rental history and income matter, too, Ortiz says, adding that landlords want to see no more than one-third of your gross monthly pay going to rent. A renter with shaky credit might get approved by paying a higher security deposit — for example, two or three months' rent instead of the typical one — or getting a co-signer or signing up to pay rent via automatic withdrawals from a bank account, Ortiz says. “There are ways around bad credit,” he says.

2. Having utilities turned on. Getting the electricity, gas, water and phone turned on at your new place isn't always as easy as just making appointment phone call. Utility companies want to make sure you'll pay your bill on time, so they typically check your credit. Instead of — or in addition to — checking with the three major credit bureaus, a utility might use a specialty consumer reporting agency focused on utilities. For example, the National Consumer Telecom & Utilities Exchange collects and reports information on payment history for cable TV, electric, phone and other utilities.

If you've got bad credit, you might have to put down a sizeable deposit — or even get a co-signer to get service turned on, says Ruth Susswein, deputy director of national priorities for consumer advocacy group Consumer Action. Deposits and policies vary. For example, Nashville Electric, in Tennessee, requires a $180 deposit for new customers, which gets waived for those with good credit. Some companies return your deposit (sometimes with interest) after a year of on-time payments. For example, in Ohio, companies that keep your deposit more than six months have to pay 3 percent interest, according to the Public Utilities Commission of Ohio.

3. Landing a new job. You aced the second interview and you're just waiting for the phone to ring with a juicy job offer. But hold on — you might have to pass a credit check first. Almost half (47 percent) of employers conduct credit checks when hiring for some or all positions, according to a 2012 survey on credit checks and employment, the most recent available, from the Society for Human Resource Management (SHRM).

But it depends on where you live: as of mid-2015, 11 states have passed laws limiting the use of credit checks in employment, according to Heather Morton, who follows the issue for the National Conference of State Legislatures. Legislators have to try to balance the needs of consumers with those of employers, and it sometimes depends on the job, Morton says. For example, Connecticut forbids pre-employment credit checks, with several exceptions — including jobs in financial institutions and those where the employee will have access to nonfinancial assets worth over $2,500, such as museum collections and pharmaceuticals. “If you're in a position of trust, such as handling people's money, a credit check might be a good thing,” Morton says.

To comply with federal laws, the major credit bureaus create modified credit reports for employers that do not include your account numbers, your year of birth or references to your spouse, according to Experian. An employer must ask for your written permission before checking your credit. And, if the company decides not to hire you based on your credit, they must tell you and provide the name, address and phone number of the agency that supplied the credit report, according to a fact sheet from the Federal Trade Commission.

However, there's good news: bad credit might not prevent you from getting the job. About 80 percent of companies have hired an employee despite negative information in their credit report, according to the SHRM survey. Experts recommend that if you have severe credit glitches, you may want to reveal them and have the chance to explain them when asked by a potential employer for your permission to pull your credit report.

4. Buying car insurance. In states where it's legal, about 95 percent of auto insurers use credit to help decide how much you'll pay for auto insurance, according to the National Association of Insurance Commissioners. However, auto insurance companies don't use a traditional FICO score. Instead, they use an insurance-based credit score, says Carole Walker, executive director of the Rocky Mountain Insurance Information Association, an organization that educates the public about insurance. These scores factor in information on how you've managed your finances, such as late pays and bankruptcy, Walker says. But states have different laws about credit and insurance. For example, Colorado won't let insurers consider medical collections, she says.

Most large insurers have their own proprietary scoring models, while other companies use scores provided by outside companies, such as FICO's insurance score. Bad credit can double or quadruple your auto insurance premiums, according to insurance consumer advocacy group United Policyholders. But there are many other factors, such as age, marital status and driving record, that also affect your premium, Walker says. “Credit is one you have some control over,” she says.

5. Getting a cell phone plan. When you go to a cell phone provider to apply for a contract — and possibly to finance a pricey phone you'll pay for in installment payments on your monthly bill — cell phone providers typically check your credit, says John Ulzheimer, president of consumer education at CreditSesame.com.

If you have bad credit, you might be required to put down a deposit that could range from $100 to $1,000 or more, depending on the carrier, the number of phone lines and your score, according to CreditForums.com, which collects data on cell phone deposits. And most cell phone providers offer no-credit-check options, too. Cell phone companies stand to make a lot of money from you, so they want to give you options even if your credit isn't stellar, Ulzheimer says: “They really want to stick their hand in your wallet, so you'd have to be a horrific credit risk to get flat-out denied,” he says.