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Credit Checks : Know The Real Facts

By December 7, 2008

In the fine print of many loan applications, lease agreements, and other financial documents there is often a much-overlooked “credit check” clause. This clause stipulates that the lender, landlord or financial institution be allowed to check the other party’s credit history. Many individuals do not fully understand what a credit check is or why one is required in such agreements.

Credit history can be a very important factor for things like allowing someone to rent an apartment or loaning money for a business, and credit checks are the method by which this information is obtained about a person’s credit and payment history. You would want to feel secure that someone would likely pay you back, wouldn’t you?

Many people are rightly worried about who has access to their important personal information contained in credit reports, and how their personal information is to be used or shared. Creditors, lenders, insurers, businesses providing lines of credit, and others can access your credit data. Fortunately, rules for credit checks are clearly defined by the Fair Credit Reporting Act.

Your employer does not have the right to look at your credit history unless you give them specific written permission. Accessing someone’s credit history, even that of an employee, is against the law. If you find that someone has looked at your credit history without permission, the law allows you to take them to court.

Many people are unaware that they can easily look into their own credit history, essentially carrying out credit checks on themselves. Under the Fair Credit Reporting Act, all Americans are entitled to request their own credit histories, free of charge, once a year from each of three different credit reporting companies, for a total of three free reports a year.

It’s imperative to obtain a copy of your credit history, because you need to know what information is being used by lenders to evaluate your financial status. One of the most crucial things to know is your numerical credit report scores. This is a summation of everything in your past having to do with credit. Most lenders will want to see a copy of your credit report with score before they can assess how wise it would be to give you a loan. Get the upper hand and find out what your score is before they ask; this will give you the upper hand when applying for a loan.

Once you understand the detail of your credit history it is easy to see why so many financial organizations what to review it before doing business with you and by knowing who can and can not access your most private finical data you can better protect yourself and your credit history form those who would use it for nefarious means.

Most contracts contain a clause allowing the other to perform credit checks on the signer. Even if people see the clause they often don’t know what it means. Any company loaning money to someone needs to obtain a credit report with score on that person in order to determine whether or not he or she is a good credit risk. They need to know how much debt a person has, whether they can afford to make even more payments, and whether they usually make their payments on time. Credit report scores can tell them this. The Fair Credit Reporting Act also lets individuals see their own credit reports and score.

- Daniel Lesser

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