what is a credit check

what is a credit check

Credit checks are conducted by financial institutions when you apply for a line of credit. It includes credit cards, mortgages, and personal loans.

Credit file

Your credit file has an overview of your credit history, including debts that are overdue and financial institutions you have applied in the past for credit.

Before taking a look at your credit file, the financial institution will ask for your approval to access it. Once you give a go ahead, the financial institution will analyze your credit file from every angle possible and on the basis of that will approve or reject your application.

You have an option of getting your credit file copy online, to get an idea of why the financial institution rejected your application.

Concept

The whole concept of credit check is based on you and your past financial record.

If you are interested in a mortgage, auto loan or some other credit form from the bank, they will check your credit before approving your loan application. Your credit rating will decide whether you get a loan or not. Good credit you are going to get it, bad credit you will face rejection.

Looking at your details

Let’s say; you have applied for a car loan or a credit card. Once your application is reached, your bank will contact a credit bureau. It is the responsibility of a credit bureau to keep your credit details on file.

There are so many companies operating in the market that do this, but the majority of them are registered with three prominent credit bureaus, namely, TransUnion, Equifax and Experian.

The bank you are dealing with collect this details from a bureau and then the role of credit reporting agency comes into the play. Generally, it includes your residential address and contact number alongside your payment transactions, which play quite a pivotal part in the success and failure of your application.

Interpreting results

The most crucial aspect is the interpretation of your details. This is the stage which decides your application fate.

Apart from looking into your financial transactions, they also take into account things such as how many times you have applied for a loan. Your success ratio plays a part, and if your application is often rejected, it is going to have an impact on your current application as well.

 A tough crowd

Everybody wants to take a look at your credit, be it financial institutions, potential employers and landlords.

Financial institutions offering you credit would like to see whether their money is in safe hands or not. If you are not able to repay the loan, it would be a bad business for a financial institution.

Potential employers seeing your credit may surprise you at first instance but in some cases, it’s necessary. For example, if you are working in a financial sector, employers would not like to hire a person whose credit history is bad.

You like it or not; landlords have the right to take a closer look at your credit file. And there is nothing wrong in it because the tenant, who can’t pay monthly dues on time is worthless.