The Details You Need to Know about Credit Checks

The phrase “credit check” is commonly used in conversations about qualifying for loans, home rentals, or even jobs. But they entail more than just uncovering your credit score. 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, Experian, 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 obtained, the number of accounts open/closed, and how much available credit you have each factor into your credit report. Together, these details indicate how likely you are to repay debt.

Types of Credit Checks

There are two kinds of credit checks, and they’re used for different things.

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. 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 application 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 at what interest rate.

Credit Check Preparations

Here are some tips for a healthier credit report so you could be ready when a credit check comes your way.

• 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.