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Credit Checks

by: Sahil | last updated: November 13, 2009
Tags: Credit checks, background checks, credit, credit card checks

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Credit Checks

Credit checks are background checks that are performed in order to gauge a person’s creditworthiness. These checks are made by using the services of credit bureaus that compile and record information about a person’s past borrowing trends and habits. Credit checks are also called background checks that are proving to be efficient in developed as well as developing countries.

There are numerous ways in which a credit check can be performed. The first is a credit score, a numeral which is intended to give a swift and standardized platform for judging the creditworthiness of a borrower. Several organizations use FICO scores, with scores upwards of 600 being considered good and scores more than 700 being excellent.

In addition to the score, the credit check also consists of a credit report which lists any open and freshly closed lines of credit and loans, together with their balance and payment histories. Therefore if you have a mortgage, a student loan, and two credit cards, then four items will appear on the credit report.

One of the most important motives for credit checks to be carried out is to establish whether a person should be offered a line of credit or not. If someone applies for a credit card, a credit check is carried out by the issuing agency. A credit check may also be run when a person signs up for a utility account, such as electricity, gas, or phone. While services may not be declined on the basis of credit history, the company may request for a deposit based on the credit history of the applicant.

Credit checks are also used by property-owners to gather data about future residents. Good credit history implies not only financial dependability, but a general sense of accountability. A potential tenant with a history of paying bills punctually and dealing with other financial matters sensibly is almost certainly a tenant who will pay the rent in an appropriate manner. Financial responsibility might also implicate that the tenant will take better care of the property, although exceptional credit does not inevitably mean that a tenant will not spoil the property.

Loan applications such as car loans, personal lines of credit, and mortgages are not generally accepted without a credit check. The loan officer will conclude the amount of loan which the applicant can manage to pay for on the basis of the credit check, and those with a low credit score may be asked to pay a elevated rate of interest, as they symbolize a credit risk in the eyes of the loan officer.

Since credit checks can be used to turn up sensitive financial information, release of credit reports is controlled to make sure that unauthorized individuals cannot use or access information about someone's credit history and financial accounts.

People can run credit checks on themselves, and this practice is strongly recommended, not just because it can be used to recognize identity theft in the form of lines of credit which have been given without your approval. Consumers should also be conscious that requests for credit checks made because of rental and loan applications show up on the credit report, and a high number of inquiries are generally perceived as a bad smear on a credit report.