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You can expect a credit check virtually anytime you apply for a loan, credit card or long-term financing from a retailer—and also perhaps when you seek an apartment rental, auto insurance or certain jobs. Here's how to prepare so your credit check casts you in the best possible light.
What Is a Credit Check?
The term "credit check" can mean different things, depending on who's checking. The law governing U.S. credit checks, the Fair Credit Reporting Act (FCRA), authorizes certain parties to check your credit, including:
- Lenders, who can review your credit reports and credit scores derived from them for purposes of gauging your trustworthiness as a borrower.
- Car insurance providers in most states, who can review specific industry-related credit scores.
- Landlords, who can review credit reports and credit scores.
- Employers, except when restricted by state or local law, who can review credit reports as part of pre-hiring background checks. In certain regulated industries, such as banking and securities trading, federal law requires pre-employment credit checks.
Under FCRA, you must be notified in writing before a credit check is performed, and you must provide written permission to do so. (Loan and credit card applications typically include language authorizing a credit check; other authorized credit checkers typically provide standalone notification and authorization forms.)
Take These Steps Before a Credit Check
No matter which types of credit check may be in your future, the following steps can help you put your best foot forward and increase your chances of success:
1. Check Your Credit Report and Credit Score
It's wise to review your credit reports regularly, to check for inaccuracies and activity you don't recognize, which could be a sign of identity theft. It's also wise to review them before any credit check—ideally a month or two ahead of time—to allow time for addressing any discrepancies you discover.
You can also check your credit score that's based on your report, likely your FICO® Score☉ . This is a number that represents the risk you pose to creditors—the higher the number, the less risky you're considered.
Because you won't know which credit report a lender or other authorized party will check, it's best to review your credit reports from each of the three national credit reporting agencies—Experian, TransUnion and Equifax—before a credit check. You can check your Experian credit report and score for free anytime. You can also get a free copy of all three credit reports from AnnualCreditReport.com.
2. Request Revisions
If you discover inaccuracies in your credit reports, you have the right to file a dispute to have the information updated or removed. Each credit bureau has its own procedures for filing disputes; the Experian Dispute Center is the quickest way to address issues with your Experian credit report.
Credit report irregularities are fairly rare, and often caused when a lender or other data furnisher reports incorrectly logged information to a credit bureau. For this reason, if you spot a discrepancy on one credit report, there's a good chance it'll also appear on the other two. In that case, you should file disputes with all three bureaus to clean things up as quickly as possible.
If irregularities you spot include new loans or credit card accounts you don't recognize, or inquiries associated with credit applications you didn't file, criminals may be using stolen credentials to seek credit in your name. Contact the lender in question using contact information found in the credit report entry and ask them to investigate. If appropriate, notify law enforcement. You also have the right to secure your credit reports with fraud alerts or security freezes, which would be wise in a case like this.
3. Consider Credit Prequalification
If you anticipate a credit check in connection with a loan or credit card application, consider seeking prequalification from some potential lenders.
This is typically a quick process in which you furnish some basic personal information and receive a tentative indication whether your application would be approved, how large a loan or borrowing limit you'd receive and what interest rate you'd be charged.
Prequalification isn't a guarantee of terms, or even of acceptance of your application—that typically depends on a formal credit check and, often, documentation of your income. This process can give you a good idea of the amount of credit you can expect and can also help you focus on the lenders offering the most affordable borrowing terms.
4. Look for Ways to Improve Your Credit
If you're unhappy with the results of your credit check or with responses to your prequalification submissions, taking steps to improve your credit score could improve the picture. Unless your credit score is weighted down by major missteps, you might even be able to make meaningful improvements in as little as 30 days.
However, don't hang all your hopes of being extended credit on a quick turnaround of your credit score. It can take months—even years—to significantly improve your credit score, particularly if you have negative entries such as late payments or collection accounts. So be patient and practice good credit habits, such as making on-time payments and keeping your credit card balances down to maintain a low credit utilization rate.
5. Unfreeze or Unlock Your Credit
If you've placed a security freeze or credit lock on your credit reports—either as a precaution or because of past instances of credit fraud—you should plan to have them removed or suspended before submitting to a credit check from a new lender, potential landlord or employer. Credit freezes and credit locks make most credit checks impossible; entities you authorize to access your credit before freezing or locking your credit reports can continue to do so, but other credit checks are blocked.
If you've applied a security freeze, you should have it removed by canceling it or requesting a "temporary thaw" for a set span of days. If you've frozen your credit reports at all three credit bureaus, you'll need to request a thaw from each bureau separately.
If you've locked your Experian credit report—an option included with other credit-security features with a paid Experian Premium membership—you can unlock it instantly by logging into your account or Experian smartphone app.
The Bottom Line
Credit checks play an important role in personal finance, your ability to secure housing and even your potential employment. With stakes that high, it can be intimidating to wonder what a credit check will say about you. Monitoring your credit regularly and following the other simple steps outlined above can help you anticipate the outcome of credit checks, and even take steps to steer them in your favor.