If an employer, bank, or other institution requests a credit check, it means they are looking to see a copy of your credit report. Your credit report is a detailed history of how you have paid your bills in the past. This includes payment history on current and past credit cards, bills, rent, and or any outstanding loans you have or have paid off recently.
Your credit report is used to calculate your credit score.
Your credit score is used by companies and institutions to measure the likelihood that you are able to pay back your future debts, based on your past history. You can expect to have a credit check done before you enter the following agreements.
Related article: When are companies able to check your credit? We explore when employers, banks, wireless companies and more are able to check your credit, and more importantly when they aren’t. Read this article here.
A credit report includes both credit information and personal information that the reporting agency gathers about you. For example, the agencies track when and if you pay your debts. They also use information from public sources, like court records.
Checking your credit score doesn't hurt your credit. In fact, it is the first step to improving your financial future. Canadians qualify for a free credit check every year. You can check your score for free here. You should get in the habit of doing this once a year in order to ensure there are no mistakes on your credit report as well as visualizing what it would take to rebuild your score.
However, this doesn't mean every type of credit check is harmless. Hard inquiries can negatively impact your credit score. A hard inquiry would be when you apply for any credit products. When you check your own score, it's considered a soft check. Before applying for new credit or entering any new agreement, it is important that you learn if it will be a soft or hard credit check.
Related article: What is a hard credit check and soft credit check? We explore the differences between the two in this article.
If you apply for several credit cards within a short period of time, multiple credit checks will appear on your report. For lenders, constant new credit can mean higher risk. That being said, most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time.
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