What Is a Credit Check?

The Details You Need to Know about Credit Checks

The phrase “credit check” is commonly used in financial-based conversations about loans, home rentals, or even job applications. But they entail more than just uncovering a three-digit number. They give lenders an idea of your creditworthiness. Keep reading to discover what you need to know about credit checks.

What Is a Credit Check?

A credit check is an inquiry to a consumer reporting agency (such as Equifax or TransUnion) that reviews a consumer's credit history and financial behavior to assess their creditworthiness. Information like your credit history, payment history, types of credit, the number of accounts open/closed, and how much available credit you have factor into your credit report. Together, these details indicate how likely a person is to repay debt.

Types of Credit Checks

Soft Credit Check:

Does not impact your credit score. It’s a credit report inquiry that can be done by a company or even yourself. Typically, it is used for a pre-approval offer screening, background check, or checking your own credit history.

Hard Credit Check:

Does impact your credit score. According to Experian credit reporting agency, this check may lower your credit score for a brief amount of time, on average by only a few points. This kind of credit check is used when you apply for a loan.

The Importance of Credit Checks

Credit checks are an integral part of the loan process. Lenders use credit checks to determine your creditworthiness. From credit history and credit score information, lenders may decide what types of loan you qualify for and at what interest rate.

Credit Check Preparations

• Create a habit of looking over your credit report at least every 12 months to make sure there aren’t any errors or negative surprises.
• Report any errors right away to the specific credit reporting agency you received your report from.
• Take action to keep your credit on a positive track by paying bills on time.

Checkmate on Credit Checks

Now you have a deeper understanding of what credit checks are, why they’re important, and how they can affect you. Remember to keep an eye on your credit score and history to avoid problems before they can start.

This information is presented for educational purposes only. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.