These days, the contents of your credit report can affect your quality of life – from whether you can rent a flat, find a job, or obtain financing for a car, home, or personal loan. With your credit score representing you so often, it’s important to know how to read your credit report, and spot [...]
Credit Check
If you’ve recently applied for a loan or been through the hiring process with an employer, you may have heard a credit check mentioned. You were probably given documents letting you know that the lender or employer intended to check your credit, but what exactly does that mean?
What exactly is a credit check?
A credit check means that someone is going to access a copy of your credit report through a credit reference agency. Your credit report contains all your credit history for the past six years, including your payment history, account balances, and credit limits. If you miss a payment, pay your bill late, default on an account, file bankruptcy, or your home has been foreclosed on, this will be included in your credit report. Your name and address will also be on the report, which will be listed as appears on your electoral roll registration.
Who will perform a credit check on me?
Lenders will almost always check your credit history, while landlords and employers may also check your credit history. Unless a lender specialises in customers with bad or no credit and advertises that they will not check your credit, you can be certain that a lender is going to look at your credit history before approving you for a loan. If you are trying to obtain financing for a home or vehicle, the bank or other financing company will also want to know how you have managed your finances in the past.
Landlords check your credit because a poor payment history may indicate that you will fail to pay your rent regularly. If you have poor credit, they may still rent the flat to you, but you’ll likely be required to put up a large deposit or pay for several months of rent up front.
Recently, it has become common for employers to check a potential employee’s credit, or to run a check on a current employee before offering a promotion. The reason for this trend is that employers believe that a person’s financial past may be directly related to how responsible they are, meaning they will not want to hire someone with poor credit as they view this type of person as irresponsible. It is also a belief among some employers that employees with poor credit are more likely to take money from the company.
Will I know that someone is checking my credit?
Yes, you will always be informed before someone accesses your credit history. By law, the company wishing to check your credit must first ask your permission to do so. Typically, a company will include this information on your loan application, while an employer will likely give you a paper explaining what checking your credit means, and will ask you to sign verifying that you understand they will check your credit.
What is a lender or employer looking for when they check my credit?
Your credit report gives a detailed history of your payment habits. Lenders and employers ideally want to see low balances that are nowhere near your credit limits, on time payments, and not too many accounts open. If you miss payments, pay your bills late, use a large amount of your credit limit, spend over your limit, filed for bankruptcy, or had your house foreclosed upon, lender and employers will be wary.
Most lenders will calculate a credit score for you based on your credit report. The method of calculating a score varies from lender to lender, but the aforementioned positive items will mean a higher score, while the negative items will mean a lower score. Even people with bad credit histories can be approved for a loan; this is entirely up to the individual lender. Some lenders even specialise in lending money to people with bad credit, but be advised that these lenders typically charge a high interest rate on these types of loans.
Regarding employers, some employers will not even check your credit history. Usually, checks are done on employees that will be dealing with money or finances in general, or other employees with a high amount of responsibility in their position. A poor credit history should not bar you from attempting to find a job. As stated before, you will be informed that your credit report is going to be accessed, so you will have time to explain your situation to the potential employer.
Can I do a credit check on myself?
You can always request a copy of your own credit report by contacting one of the three credit reference agencies: Experian, Equifax, and Call Credit. All three agencies are required by law to provide you with a copy of your report for a fixed fee of £2.
It is a good idea to access your report whenever you are trying to secure financing or job searching. That way, there are no surprises if you are denied the loan or job due to your credit history. Additionally, you will be able to identify negative items on your report and you may be able to explain why your credit report has these items. You also should check your report for errors, inaccuracies, or signs of identity fraud. These are all situations where your credit report may say something negative, but the information is untrue and you need to get the information changed to reflect your true credit history. The only way you can assure that you’re ready for the credit check that comes along with shopping for a loan or looking for a job is by doing one yourself first.