So you’ve heard of something called credit checks. There are two 2 types actually.
What is a credit check? A credit check is the analysis of your credit record. Before credit providers will lend you money they would like to have a look at your track record. This is to assess what type of risk the credit provider is accepting when they offer you a loan. This type of information is used by the credit provider to determine the terms and conditions it will offer you for a specific loan - For instance the interest rate it will charge you on your personal loan.
All of your history pertaining to banking and retail accounts are kept in the cyber space. Whether good credit or bad credit, credit bureaus documents this information. Thanks to the technology it is possible nowadays to get credit much faster by online loans. Data is much easier to acquire. Credit providers harvest this information via credit bureaus and are put in a position to make an informed decision on whether they are willing to accept your loan application.
What are the 2 types of credit checks?
Hard Credit Check
These credit checks will typically take place when you apply for credit. When you apply for a loan you will be informed that the credit provider will do a credit check to which it is accepted that you give consent. A hard credit check is then logged on your credit record. Be aware though of the effect of a hard credit check. A hard credit check brings your credit score down by a few points. Why? Credit providers want to know how often you apply for credit. Someone that applies frequently for credit has one of two meanings. Either they burn so quickly through money that they are regularly in need of credit, or they keep applying for credit because they can’t seem to get it approved. None of these outcomes are desirable for your credit record. A hard credit check rides on the fact that you give initiate the need for the credit check. The good news is that you are entitled to a free credit check every 12 months without it being logged as a hard credit check.
Soft Credit Check
This type is incurred when an institution does a background check on you. The person or company checks your credit record without your knowledge. Therefore this credit check is not logged on your credit record since you did not give consent for the inquiry. A typical soft credit check is done by your bank to give you personalised offers for quick loans without you applying for a personal loan.
“You gotta check yourself before you wreck yourself.”
Know the state of your credit score. Just be advised that too many hard credit checks may lead to a poor credit record.