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For Better or Worse: The Power of Credit Reporting

12/15/2021

After an extensive application and interview process, Ashley received a tentative job offer with a great company. She was so confident in her prospects, she quit her current job.

Then, right before her hire date...

For Better or Worse: The Power of Credit Reporting

Credit Reports Are Not
Just for Lenders Anymore

After an extensive application and interview process, Ashley received a conditional job offer with a great company. The salary was good and the benefits package was generous. She was so confident in her prospects, she quit her current job and got ready for the big career move.

Then, right before her hire date, her new employer retracted the offer. She later learned that collection accounts on her credit report adversely affected the employer’s final decision.

Who Looks at Credit Reports?

There was a time in the not-so-distant past when only financial institutions and other lenders ran credit reports. Not so anymore. Nowadays, employers, utilities and insurance companies also rely on credit scores and credit reports when making decisions about consumers.

In fact, according to the latest survey by the Professional Background Screening Association (PBSA), 38 percent of employers run credit reports on job applicants at least some of the time. That’s a 12 percent increase over 2017 figures. And 14 percent of employers check the credit reports of every applicant, up from 6 percent in 2017. (Note: Employers cannot access consumers’ three-digit credit scores. But they do see a modified version of their credit reports.)

Why do employers run credit checks? Several reasons:

A history of late payments could indicate irresponsibility or a lack of organization.
Individuals with excessive debt could be a potential risk for theft or fraud.
If the job involves company funds, someone who mishandles their personal finances could be a poor fit

That’ll Cost You

A high credit score opens doors, and results in lower premiums and interest rates. On the other hand, a low credit score often has the opposite effect. A single collection account on a credit report can cause a good credit score to drop 50 or even 100 points.

Most of us realize that a negative credit report can cost a small fortune in interest on a car loan. But here's something you may not know: It can also increase insurance premiums.

Take car insurance, for instance. Insurance carriers base their premiums at least partially on credit scores. That's because statistics indicate that drivers with lower credit scores file more claims.

According to The Zebra's 2021 "The State of Auto Insurance" report, “Drivers with poor credit pay 122% ($1,566) more for car insurance than drivers who have exceptional credit.”

In addition, poor credit can adversely affect a consumer’s ability to rent an apartment in two ways:

Landlords tend to favor applicants with good credit ratings.
Tenants with poor credit often must pay a significantly larger security deposit.

Credit Report Errors

According to a 2021 Consumer Reports study, 34% of consumers have reported at least one mistake in their credit reports.

The most common errors related to debt were:

Unrecognized account: 41%
Unrecognized debt sent to collection agency: 26%
Payment incorrectly reported as late: 23%
Payment incorrectly reported as missed: 12%

The study also stated that debt erroneously reported as in collections, or reported as late payment, could lower a consumer’s credit score by as much as 100 points.

For instructions on how to fix credit report errors, click here.

About Credit Bureaus

Each of the “Big 3” credit bureaus (Equifax, Experian and TransUnion) maintains a database of financial and personal information on more than 220 million American consumers. These bureaus merge historical financial data with behavior analytics for certain types of debt. In this way, they can identify consumers as either a good, mediocre or poor credit risk.

A credit report from these three credit bureaus is often the determining factor when it comes to landing a job (or not) or receiving a security clearance (or not). And it’s probably the single biggest factor in deciding whether a consumer qualifies for a home mortgage or vehicle loan.

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In addition to the Big 3, there are about 400 regional or industry-specific credit reporting companies in the U.S. These firms can provide specific information about consumer employment, rental history, and medical debts.

Every year, credit bureaus collectively make an estimated 36 billion updates to consumer files based on data from 18,000 sources.

Use Responsibly

The power that comes with credit reporting necessitates a concomitant responsibility. Reputable collection agencies, like CSC, do not take this responsibility lightly.

Whenever possible, we will work with consumers to keep overdue accounts from being reported to the credit bureaus. To this end, CSC has developed a unique program whereby, if an account qualifies for reporting, but the consumer makes and keeps a payment arrangement, we will not report the account.

This is just one of the ways we at CSC have made it our mission to help your consumers pay their debts and get back on the road to a positive credit rating.

Medical Debt Is Different

In 2017, credit bureaus changed the way they report and evaluate medical debt. They now wait six months before including medical debt on a patient's credit report. This grace period is designed to make sure consumers have enough time to resolve any delays in payment or disputes with insurers.

In addition, credit bureaus are now required to remove a medical collection account from a credit report if the amount has been paid -- or is in the process of being paid -- by insurance.

Source: Kaiser Health News