Credit Check

Credit Check
A credit check is an official review of the credit history listed in your credit report. Lenders, credit card companies, and others conduct credit checks to determine how likely you are to make payments on time.

What is a Credit Check?

A credit check—also known as a “credit inquiry”—is an official review of your credit report. Your credit report contains a range of financial information such as whether you’ve made payments on time and if you’ve defaulted on loans. Credit reports are created by the three major credit bureaus: Experian, Equifax, and Transunion. The information added to your report remains there for seven years.

Are there different kinds of Credit Checks?

Credit checks come in two varieties: hard and soft.

Hard credit checks are used by credit card companies, lenders, and landlords to determine your creditworthiness. Essentially, these people want to know if you’re going to make payments on time, and they choose whether to offer you a credit card, loan, or apartment based on what they see.

Soft credit checks are typically used by financial institutions who want to offer you a pre-approved offer. For instance, if a credit card company sees that you’re good about making payments, they may pre-approve you for a card.

Who can conduct a Credit Check?

Under law, anyone with a demonstrated need can access your credit report. If it’s requested, the credit bureaus can send your report to lenders, employers, government agencies, investors, or the courts.

Soft credit checks can be done without your permission. Hard credit checks, however, must first be authorized. A hard credit check will typically be required if you apply for a loan, credit card, or rental property.1 When you submit your application, you usually also sign an agreement that allows access to your credit report. Hard credit checks are recorded on your report, and if you have too many of them, they can lower your credit score by a few points.2

How long does a Credit Check stay on my credit report?

Both hard and soft credit checks stay on your credit report for up to two years. They are visible to anyone who views your report. Hard inquiries only have a negative impact on your credit score for 12 months.3

How can I see my credit report?

You can request a free credit report from each of the three credit bureaus once a year. What you see on your credit report is exactly what lenders and landlords will see if they conduct a credit check. If your credit report shows that you have delinquent payments or outstanding debt, it’s a good idea to take care of them as soon as you can.

Why is it important to check my credit report?

Your credit report—and the credit score that is calculated based on your credit report—play a large role in many decisions that have a big impact on your life. Based on a credit check, a lender will decide how much interest you’ll pay for a loan, and a landlord will decide whether or not to rent you an apartment.

If you don’t know what’s in your credit report, it’s a good idea to request one and address any negative information as soon as you can. Occasionally, credit reports contain errors, and if you find an inaccuracy in yours, you should take action to correct it. You can do so by following the Federal Trade Commission’s step-by-step instructions.

Bottom Line

Credit checks are used to make decisions that have a big impact on your life. Consider requesting your credit report so you know what’s in it.

References

1 “Who May Request my Credit Report?” Consumer Financial Protection Bureau, https://www.consumerfinance.gov/askcfpb/1305/who-may-request-my-credit-report.html. Accessed 30 March 2017.

2 “The Difference Between Hard and Soft Credit Inquiries.” TransUnion, 12 Dec. 2014, http://blog.transunion.com/the-difference-between-hard-and-soft-credit-inquiries/. Accessed 30 March 2017.

3 “The Difference Between Hard and Soft Credit Inquiries.” TransUnion, 12 Dec. 2014, http://blog.transunion.com/the-difference-between-hard-and-soft-credit-inquiries/. Accessed 30 March 2017.