If you are about to apply for a loan or a mortgage, you probably have heard your potential lender talk about performing a credit history search, such as Experian credit check. But do you know what that really entails?
A credit check details all your relationships with lenders, be it for a credit card, a personal loan, a mortgage or any other for of lending, such as paying utility bills in arrears.
It will show all the money you have borrowed in the past, as well as all the debt repayments you have made to pay off your balance. With every payment, the potential lender will be able to see if you were late, or did not pay at all. They will also see how much money you have borrowed, so they can compare that to how much you make, to make sure the future line of credit they are about to open for you is not only affordable considering your situation, but also has a high chance of getting paid back.
If you are a first time buyer, about to get your very first mortgage, you may think that a credit check is unnecessary, as you never bought a house before. Wrong. Your credit history will also show if you were late on a utility bill or mobile phone payment, or if you were associated to people who did not handle credit well. That could be your previous partner with whom you had a joint account. Lenders also like to search as part of a credit check your previous address history, if you have moved houses a lot, it could be a flag and they may ask for more information.
Sometimes, your employer may ask to check your credit history, particularly if you are applying for a job in the financial services industry. They just want to make sure that everything is fine. The same goes for your potential landlord if you are on the lookout for a place to rent. By running a credit check on you, the landlord will confirm your story and previous address if they need to send a letter asking for references.
You should know that you can also run your own credit check, via a credit agency. It is even recommended that you do so before you apply for a loan, so you can improve it and get the best rate. It may help you prevent identity theft, or having any incorrect details amended before they potentially hurt you. For example, if it is said in your report that you missed a payment on a consumer loan 2 years ago, and it was the lender’s fault as they forgot to amend your direct debit details when you switched bank and asked them to do so, you could have repercussions on a future mortgage or personal loan interest rate, even though you had nothing to do with the mistake. So once you get the information, you can contact your lender and ask them to rectify the data with the credit agency.
Performing a regular credit check will ensure that everything is in order with your credit history.