What is a Credit Check? How Can I Get one?

We’re sure you already know that credit checks are used to determine your creditworthiness. From a lender’s point of view—whether a landlord or a bank—your credit score is a measure of how likely you are to repay loans or make recurring payments, such as rent, on time. That’s why checking your credit is one of the best ways to stay up to date on your financial well-being. Being in the know about the state of your credit can help you determine whether you will qualify for specific apartments, mortgages, loans, credit cards, and much more. Let’s dive into credit checks: what they are, how they’re used, and their impact on your financial success. 

What is a credit check? 

A credit check is performed by making an inquiry into your credit history—a record of the details of all your credit accounts. This record indicates how successfully you have handled your credit and debt and is made up of: 

  • Your payment history 

  • The types of credit you have 

  • The balance of each line of credit 

  • Your credit limit 

  • Whether you have filed for bankruptcy, had a home foreclosed, or had personal property repossessed 

So, where exactly is your credit report

Credit reports are maintained by companies known as credit bureaus (also called credit reporting agencies). The three major credit reporting agencies in the U.S. are Experian, Equifax, and TransUnion. Lenders and relevant parties can check your credit reports through these bureaus by performing two types of credit checks: soft inquiries or hard inquiries. 

Soft vs. hard credit checks 

Many people believe that checking your credit will lower your credit score. However, this isn’t always the case. There are two types of credit checks: hard and soft. Hard credit inquiries are often used by lenders after you submit an application for a line of credit, such as a credit card, car or personal loan, or a mortgage. Hard credit inquiries can lower your score slightly.  However, as Steve Weisman, attorney and senior lecturer in law, taxation, and financial planning at Bentley University, assures, they generally aren’t “as significant a factor (in your score) as whether you’re paying your bills on time, how much of your open credit you’ve used or the length of your credit history.” 

Furthermore, certain hard inquiries—such as those used while rate-shopping for things like auto loans or mortgages—are frequently ignored, as opposed to those used to apply for multiple new lines of credit over a short period of time. 

Soft credit inquiries, on the other hand, do not affect your score. You can perform soft credit checks on your own through a number of free apps and websites. Whether a lender, landlord, service provider, or financial institution will use a hard or soft inquiry to check your credit isn’t always obvious. The only way to know for sure which type of check will be performed—and, by extension, whether your score will be affected—is to ask. 

How and when are credit checks used? 

Credit checks are used to decide whether you qualify for credit, and if you do, what your terms, credit limit, and interest rates will be. Both hard and soft credit checks are used to determine your creditworthiness. How and when each of these types of inquiries is used depends largely on the purpose of the check and the type of lender or institution making an inquiry. Hard inquiries are performed only when you permit certain businesses to do so. These inquiries are used by lenders when you apply for lines of credit. They could lower your credit score very slightly and are visible by other businesses when they check your credit. 

Unlike hard inquiries, soft credit inquiries may be performed without you even knowing it. For example, if you’ve ever received a promotional credit card offer in the mail, the company that sent it likely performed a soft credit check on you—it wouldn’t make sense for them to offer a credit card to someone who wouldn’t even qualify. In some cases, employers perform background checks—they may be more confident in the responsibility of employees with good credit than those with considerably less-than-perfect scores. 

How to check your credit  

Checking your credit regularly is an important tool for protecting your financial security. Staying informed about what’s going on helps you spot errors that may affect your score (which makes it more difficult to get approved for loans) and identify fraudulent activity. Worried that checking your credit will lower your credit score? Don’t be—checking your own credit score is a soft inquiry, which won’t hurt your credit score at all. 

Some personal finance companies, finance apps, and websites allow you to get free credit reports on demand. You can also check your credit report once a year straight from any (or all) of the three major credit reporting agencies: Experian, Equifax, or TransUnion. Here at Personify Financial, we value the importance of taking your credit into your own hands. That’s why we provide all our customers with their FICO Scores—entirely free.