A credit check is an evaluation of your credit history, typically conducted by a lender, landlord, or employer to assess your financial reliability. It involves reviewing your credit report, which contains information about your borrowing and repayment behavior.
Here’s what a credit check generally includes and why it’s done:
What’s Included in a Credit Check?
A credit check gives a summary of your credit history, including:
- Credit accounts: Details on loans, credit cards, and other credit lines, including payment history, balances, and account status (open or closed).
- Credit inquiries: A record of recent credit checks done by lenders or other parties.
- Public records: Information on bankruptcies, liens, or judgments.
- Debt history: Details of your debt balances, including missed or late payments.
Types of Credit Checks
- Soft Credit Check: This does not affect your credit score. It’s typically done for background checks by employers or when you check your own credit report.
- Hard Credit Check: This can slightly lower your credit score. It occurs when lenders review your credit for a loan, mortgage, or credit card application.
Why Are Credit Checks Done?
A credit check gives a summary of your credit history, including:
- Lenders: To decide if you’re eligible for a loan and to determine your interest rate. A good credit score often leads to better rates.
- Landlords: To assess your reliability as a tenant, ensuring you’re likely to pay rent on time.
- Employers: Some employers check credit for roles that involve financial responsibility.
- Insurance companies: They may check credit to set rates for policies, as some believe it predicts risk behavior.
How to Prepare for a Credit Check
- Review your credit report: Request a free copy of your credit report to check for errors.
- Pay bills on time: Consistent, timely payments improve your score.
- Lower your debt: Reducing outstanding balances and keeping credit utilization low benefits your credit score.
A credit check helps provide a snapshot of your financial responsibility, and it plays a key role in financial and professional opportunities.
