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Understanding credit checks

Credit checks are at the heart of applying for credit. Make sure you understand them.

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Credit checks are at the heart of many financial transactions. If you’re applying for any sort of loan – car, mortgage, post-paid mobile plan or credit card, for example – your bank or financial institution will do one before approving your loan.

They are a way to look at your history when it comes to applying for and paying off a loan. These checks gives banks comfort you’ll be able to pay back your loan on time and in full. These checks are known as hard enquiries, and will leave a mark on your credit report, so it’s best to avoid too many in a short amount of time.

“Financial institutions are required to do credit checks as part of their responsible lending obligations. They use them to assess whether you’ll be able to repay your loan,” explains Stephen Smyth, Head of International, ClearScore.

So it’s important to understand what your score is and regularly check whether it’s changed.

Your credit report is one of the most important documents banks consider when they do a credit check. They are prepared by credit reporting bodies, such as ClearScore’s partner, Experian.

A credit report includes information such as your name, date of birth, where you have lived over time, your employment history and your driver's licence details.

It contains a record of the loans you have taken out over the last two years, as well as credit limits and the institutions that provided the loans. It also includes a record of loans you have applied for or taken out with someone else such as your spouse.

Anyone who accesses your credit report will also be able to see when you have applied for a loan, regardless of whether it was approved. They can also see whether you have made any late payments or defaulted on any loans worth $150 or more. The report will also reveal whether you have been bankrupted, any court judgments against you, as well as any debt or personal insolvency agreements.

Since 2018, banks and financial institutions have been able to include information on your credit report such as the amounts you usually repay against your loans, how often you make repayments and if you make them by the due date. This is part of the Comprehensive Credit Reporting (CCR) regime. This gives lenders a full picture of a borrower’s financial history, including ‘positive’ credit information such as consistently making repayments and paying off debts. Previously, credit records largely listed negative information such as missed payments and defaults.

It’s a good idea to review your credit report regularly so you can make sure the information on it is accurate and can correct any mistakes. You can check your credit score and credit report every month for free with ClearScore. (Checking your own credit report is known as a soft enquiry - these don’t appear on your credit report and won’t affect your credit score.)

This means next time you want to apply for a loan, you can be confident the information your lender will use to assess your loan application is correct.

Next step: Go to ClearScore to get your free credit score and report in just two minutes.

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