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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.
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