What Happens During a Credit Check?

A credit check can be an intimidating experience even for those with excellent credit. No matter what your credit score may be, it's natural to worry if you have some negative mark that can keep you from getting the house or car you want. Understanding the importance and the process of a credit check can help you to understand what you need to do in order to pass credit checks.

Importance of Credit Checks

Your credit history is one of the most important pieces of your adult life. With a solid history, you can access the best offers from creditors. If your credit is spotty, though, you may have trouble acquiring the things you want in life. Items such as cars, apartments and houses routinely require credit checks. In addition, employers are increasingly looking toward credit checks to make determinations about the responsibility levels of prospective employees.

What Gets Reported

Your credit score is determined by five main factors. The most important factor is your payment history, which is followed by your amount of outstanding debt, the age of your credit accounts, the number of recent attempts you have made to obtain new credit and the mix of credit accounts you currently have. Your credit score is a snapshot of how your credit compares to others at that specific moment, so your score constantly changes as your credit activities change.

How Decisions Are Made

While your credit report is full of information about your credit history, most lenders will only look at your overall credit score. Your score may be used with other factors, such as your income in relation to your current debts, but your credit score is the main determining factor for a credit check. Just one late payment can significantly damage your credit score, even if the rest of your credit file is spotless; however, the loan officer just sees the score and not the impressive history of credit management.

How to Beat a Credit Check

If your credit score is less than perfect, it doesn't mean you're doomed to a lifetime of high interest rates and poor living spaces. Obtain a copy of your credit report and review it for errors; since nearly 80 percent of credit reports contain inaccurate information, according to CBS News, you may be able to significantly repair your credit score through this one step alone. In addition, be sure to pay your bills on time, as this is the most important factor of your credit score. Improving your credit will likely take time, but the next time your credit needs to be checked, you'll have a much better chance of passing the test.