What is a credit check, how does it work and affects your credit score
You have certainly read and heard about credit checks in connection with various credit cards. This is the most important examination that is done by you before your application is approved or rejected. There are very few credit card companies that do not conduct a credit check of their applicants. This survey is the banks’ most important tool for determining the outcome of your application. When applying for a credit card, it is therefore important to understand what a credit check is. The result of this check will have a big impact on whether you can get a credit card or not.
What is a credit check?
When a bank or credit card company conducts a credit check, they basically check your finances. They do this to find out if you will be able to repay the credit. Because in practice you take out debt on a credit card, the providers have to know if you will be able to repay your debt. The credit check is in most cases completely automatic – this is the reason why you can get such a quick response to your application. On the credit check, the provider mainly looks for active debt collection cases. If you have debts you are unable to repay by the deadline, it is common to receive a debt collection claim.
This is a collection of your debt and can in the worst case lead to a forced sale of assets you have taken a mortgage on. If the credit card company finds an active debt collection case, it is likely that you will have your application rejected. The credit check also provides information about your registered address, your tax assessment, estimated gross income and business interests. In order to be able to give you sound credit, the providers ensure that you get a good overview of your finances with the help of the credit check.
Who carries out the credit check?
Most credit card providers across the globe use a company that specializes in credit checks when they process your application. The largest credit check companies in United States are Equifax, Experian, and TransUnion. Experian is a world leader in analysis, data and statistics. The company helps to assess the risk on various customers, and then primarily with a view to credit checks of private individuals. Equifax is also an analysis company that conducts credit checks for a number of companies and individuals in US. It is wise to be aware of which companies are considering how much credit you should get.
On both Equifax and Experian‘s websites, you can do a credit check of yourself against payment, and thus get a full overview before the credit card companies receive it. You can also do a free credit check by contacting one of the credit information companies and requesting access to your registered personal information. You should do such a check before applying for a credit card. If you find errors, you can contact the company you received the information from and ask them to correct it. Then you are sure that you have everything clear before you apply to the credit card companies.
When can a credit check be done?
In United States, we have strict legislation regarding both credit and debt collection. A credit check can only be carried out if there is a valid reason for it. When you apply for a credit card, the check is made because the company must assess your credit. In order for a credit information company to be allowed to publish information about you, they must have a license from the United States Data Protection Authority. This is to ensure proper management of credit information. This is a secret and you must therefore accept that the credit card company checks it when you apply. It is only when you are going to buy goods on credit that companies have a valid reason to do a credit check of you. If you receive a letter stating that a credit check has been completed, but have not agreed to such a check, you must contact the credit information company.
How can you improve your credit score?
Credit scores are used by most credit card companies today. This is a point calculation that shows how likely it is that a person will receive a payment remark within the next 12 months. This calculation is a statistical analysis of your credit history and will depend on the number of payment remarks you have had. There will be a difference between the different credit card companies and how high your credit score must be to get the application approved. The most important thing you can do to improve your credit score is to make up for previous payment remarks.
If you have active debt collection cases, you should pay down your debt before you apply for a credit card. Then you will also receive better offers from more credit card companies. The interest rate you get on your credit card depends entirely on the type of credit score you have. If a credit card company takes into account the low credit score by increasing the interest rate they offer, you should be aware of this before applying for their credit card. You could potentially end up with a sky-high interest rate that will cost you a lot in the future. Then it may be cheaper for you to improve your credit score by paying off debt than to be left with a high interest rate on your credit card.
Whether you have good credit score, bad credit, or no credit at all, your credit history and score affect your life. Your credit check history is how future lenders, landlords, insurance providers, employers and more can decide that you are a relative risk when it comes to stability around money. In this article we have covered all the required answers to resolve following important questions:
- What is a credit check
- A credit check meaning
- How does a credit check work
- How to do a credit check
- What is a credit check process
- How to run credit check