There are a number of situations where a person’s credit score will be checked. For example, when someone tries to get a loan or rent an apartment. In each of these cases, the lender or the potential landlord will perform a credit check as part of standard practice. But maybe you are wondering how do lenders check your credit score? We’ll answer that question and more for you today.
Why and How do Lenders Check Your Credit Score?
There seems to be a lot of mystery surrounding credit histories and credit scores. At MediPro Capital Finance, we are often asked a lot of questions by our clients about credit scores and credit checks. As a result, we want to educate you about who will check your credit and how do lenders check your credit score. But first let’s go over why lenders check borrowers credit histories.
Why are Credit Checks Performed?
Whenever two parties come together to make a deal, such as to lend and borrow money, or rent an apartment, there can be asymmetrical information. The bank or the potential landlord will not know much about the borrower or potential tenant. This leads to a concept in economics known as adverse selection, where for example the bank doesn’t know that the borrow has a lot of unpaid debts or the landlord doesn’t know that the potential tenant is between jobs. This is the kind of information that the borrower or potential tenant is not likely to share. A credit check lowers this level of asymmetry in information by providing useful information to a lender or landlord that will help them to determine how risky it is to do business with someone. Credit checks are a very useful tool in risk reduction.
Who Can and Will Check Your Credit?
We’ve already mentioned banks and landlords as being common inquirers of credit scores. But there are other groups that may want to know about your credit history. Here’s a list of such organisations:
Credit Card Companies
Automobile Finance Companies
Providers of Student Loans
Someone with a Court Order
How do Lenders Check Your Credit Score?
When a lender or somebody else wants to check your credit score, they will usually first need your authorisation. An exception to this is if there is a court order involved in the credit check. A provision to allow for a credit check is usually included in most loan or credit card applications and on applications for other services like renting an apartment or getting insurance. The lender or other party will then contact a credit reporting agency. There is usually a fee involved when the credit agency issues the credit report, and this fee can vary depending on who wants the credit check. A bank will probably get a better price on each credit check as they are likely to perform a lot of them. It is worth noting that these kinds of credit inquires will show up on your credit history, which can lower your credit score. This is because a person having their credit checked frequently could be an indication that they are taking on considerable debt, making it a higher risk to lend them in the future. For this reason, you need to be careful about how often you have your credit checked.
Contact a Professional Finance Broker for More Information
As you can see, having your credit score checked is quite simple and straight forward. In fact, the whole process of borrowing or taking out a mortgage can be extremely simple, especially when you work with a quality finance broker. At MediPro Capital Finance we specialise in home loans for professionals, and we’re glad to assist you with buying a home or any of your other borrowing needs. You can contact us on 1300 375 626 or by filling out our online form. Get in touch with us today.