What is a Credit Check?

An action taken by a prospective lender to determine if a person is creditworthy is called a credit check. A credit check entails seeking a detailed analysis from a credit reporting bureau or agency. The report usually contains things like date of birth, social security number, current and in some cases previous address, employment history, current employer and income, and payment history for loans and other debts.

When a credit check is conducted, payment history is documented through items reported by creditors to credit bureaus, such as timely payments - or lack thereof. If a credit check shows a person to be a poor risk for repaying debt, the loan or charge card may be refused. If credit is approved despite a less than glowing credit check, the amount of the loan or the credit limit may be lowered; the interest rate may be increased, or both.

Any time you apply for a loan or a credit card, or attempt to obtain store financing for a purchase such as furniture, the lender will perform a credit check. Actually, most will request at least two, from different sources, and compare them. Three of the top credit bureaus are Equifax, Trans Union, and Experian — which was originally called TRW. These are well established, frequently used sources for performing a credit check.

The Fair Credit Reporting Act of 2003 stipulates that any person may obtain a free copy of his or her credit check once each year from any recognized credit reporting bureau. There are certain exceptions, which will allow you to obtain a free credit check more than once per year, such as if you are denied credit, insurance, or employment, or if your fees or interest rates were increased within the last sixty days. Simply write to the credit bureau, include proof of your situation, and request a report.

You may also purchase a report by submitting a written request to a credit bureau by mail or by ordering online. It is a good idea to keep track of what is in your report in order to help you maintain good credit, not only so you can borrow money when you need to, but also to ensure that you receive the best rates.