What is involved in a credit check?

A credit check is an inquiry into your credit score that is initiated by a bank or money lender to whom you have applied for a loan of any kind, be it for a business venture, for buying property, for the purchase of a car or your child’s education. Credit checks will also be initiated by a credit card issuing bank as a first step in processing your application for a credit card with them. A credit check is usually a necessary aspect of any financial transaction where a company offers you some good/services on credit.

Do I have to authorize a credit check?

There are two kinds of credit check inquiries. A hard inquiry which should be initiated following your application for a loan, mortgage or credit card would necessarily have to be authorized by you. However, a soft credit check may also be conducted by a prospective employer to whom you have applied for a job or even by a landlord on a potential tenant. Usually, such soft credit inquiries may be carried out as part of the routine background check done by the individual/company and may not require your authorization.

How does a credit check impact my credit score?

Hard credit inquiries made by banks, money lending institutions or credit card companies take stock of your credit scores over a period of 6 years, factoring in defaulted or missed payments. A hard credit check inquiry may adversely impact your credit standing. However, usually these credit score alerts drop off as and when you regularize your payments and so may not have a significant long term implication on your credit score.

Soft credit inquiries are usually done as a pre-employment background check and are initiated by a prospective employer through a credit assessment bureau to assess your trustworthiness. Soft credit check questions will not usually impact your credit rating.

Who is entitled to initiate a credit check and when?

When you apply for a credit card or for a loan or mortgage, the organization that offers you the line of credit is entitled to carry out a credit check on you, pending your authorization of the same.