Credit checks

Credit checks are official inquiries into your personal financial behavior, particularly as it pertains to borrowing and paying back money. The three major credit reporting bureaus are Equifax, Experian, and Trans-Union. Each bureau gathers personal financial data and establishes a credit rating for the individual. The credit rating, or FICO score, is reported to an inquiring source, usually with the written permission of the individual. Often all three scores are averaged for a composite score.

Frequent credit checks, primarily caused when applying for several credit cards, may actually cause one's credit score to drop. The credit bureaus will consider multiple credit checks for mortgage and auto loan applications within a 45-day period as just one inquiry. The bureaus also ignore all credit checks made within 30 days prior to the day the score is computed.

Credit checks are no longer limited to loan application forms. Many potential employers will use a credit check as part of your application process. Insurance companies may use a credit check to help evaluate your liability worthiness. Banks may refuse to let you open an account if a credit check does not meet their standards. A landlord may require a credit check before renting an apartment to you, or may establish a higher rent in the event of a poor credit rating. While supporting statistics and civil rights issues are being explored, these practices are becoming more common.

Many student loans do not require credit checks, as is true with many insured or subsidized private and government loans. But most loan applications, especially for unsecured loans, rely heavily on credit checks to establish the size of the loan, its payback length, and its interest rate.

You may review your credit report for accuracy at any time. Federal law allows you to obtain a free copy once a year, but you may have your bank or lending institution share their report with you.