Your credit report is one of the most important elements of your finances, but have you ever considered why credit checks are run and who is authorized to see yours? In this post, we’re discussing the details of a credit report, what your credit score can impact, and who can run a credit report on you.

What’s a credit check?

A credit check is a financial report that presents details on an individual’s financial history. There are three main credit bureaus who conduct these reports for consumers and other agencies that are authorized access to the reports. 

The three credit bureaus are:

  • Experian
  • TransUnion
  • Equifax

Credit reports include a variety of metrics that represent an individual’s financial profile. One of these elements is a credit score. A credit score is a number that summarizes all of the other information on the report. This number correlates with a scale that determines whether the score is considered high, low, or in between. 

In order to get to your credit score, these bureaus collect a variety of information from your financial history including:

  • Credit history
  • Credit card and loan payment
  • Debt to income ratio
  • Length of credit history
  • Personal information

Why are credit checks important?

Your credit report can impact many different aspects in your life—even ones you might not consider to be  financial. Credit checks are often used to approve new lines of credit, such as loans, mortgages, and credit cards. Your credit score helps determine whether you get approved for the credit line and it can impact the loan’s interest rate.

Additionally, credit checks can affect your living and working situations. Many landlords include credit checks in their rental application process. This allows them to verify the applicant’s history of timely bill payments, debt management, and financial responsibility. As for work, some employers will run background checks on potential employees that may include a credit report to help them evaluate their financial habits and responsibility. Although these employment credit checks are generally reserved for candidates who are applying to work within the financial industry, it’s important to note that a history of poor money management may disqualify you from a job down the road.

 

Who can ask me for a credit check?

Your credit report includes a lot of sensitive personal and financial information that you don’t want to let just anyone get their hands on. That’s why the Fair Credit Reporting Act (FCRA) puts restrictions on who is allowed to access and request consumer credit reports.

According to the Consumer Financial Protection Bureau, the FCRA allows certain creditors, landlords, employers, government authorities, and others to do so if their reason for requesting the report falls within the following categories:

  • The report relates to a credit transaction, such as applying for a credit card or collecting on a credit account.
  • An insurance company is offering insurance coverage.
  • It is related to an employment matter and the employee has authorized the employer to run a credit check.
  • A government agency is checking an individual’s credit to offer government benefits or to issue a license.
  • The report relates to a business transaction that is contingent on a credit report.

Note: These checks are considered “hard hits”; too many of them performed within a narrow window of time may have a negative impact on your credit score. For example, if you apply for several different credit cards during the same week, the urgent need for credit may cause you to appear risky in the eyes of lenders.

Takeaways

Credit reports contain critical pieces of financial data that help lenders determine your credit-worthiness. However, reports aren’t issued to just anyone and everyone—they must meet certain standards by law for authorization to access such sensitive information. Credit reports are important for a variety of reasons including employment eligibility, creditworthiness, and the ability to rent housing. Work on raising your credit score and building a financial foundation that paves a way for future success.

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