All you need to know about credit checks
If you have applied for a loan or if you are thinking of applying for a loan, you might have come across the term ‘credit checks’.
Credit checks are performed by lenders to determine the creditworthiness of an individual when applying for a loan. There are two components to an overall credit check.
We refer to these two features as credit score and credit report. These terms are also often confused with one another. Understanding both enables you to know your financial strengths and weaknesses and helps you work towards financial stability. Additionally, it is a guide to how you can improve your credit score.
Here is what you need to know about your credit score and credit report.
What is a credit report?
A credit report is a list that is compiled by lenders. It includes information relating to your lenders, repayment totals, history and repayment frequency, for example. It gives a detailed report on your current debt status.
Information contained in a credit report
- List of lenders, including credit cards, personal accounts and loans
- Total amount owned to each lender and credit limits
- How often the consumer makes repayments and the repayment amount
- Other lenders/credit providers who have viewed your credit report recently
- Personal address
- Employment details
Who can view your credit report?
- Landlords
- Creditors
- Loan lenders
- Government agencies
- Utility providers
- Employers
What is a credit score?
A credit score is a numeral expression of information contained in your credit report, from 300 to 850.
You can increase you credit score by not defaulting on debt repayments, making repayments on time and settling your total debt balances.
Who can view your credit score?
- Landlords
- Credit card companies
- Loan lenders
- Car dealers
- Banks
What are the consequences of a poor credit report and credit score?
Credit reports will impact apartment approvals, loan approval, loan interest rates and credit card approvals. It is in your own interest that you maintain a healthy credit report to ensure that you are approved should you seek credit with a lender. It also ensures that you have the best interest rates and fees available to you.
How to improve your credit report & score
Even if you have a less than perfect credit report and score, there are many ways you can improve it. This will increase your chances for future loan approval, home loan applications and other related services.
Your credit report and score is not stagnant. By following these guidelines, you will not only positively change the contents of your credit report but consequently, your credit score.
Paying your bills and lenders on time
It is probably the easiest method to ensure your credit report and score allows you the financial freedom to apply for loans. It will also ensure that you get the best interest rates and fees available.
Keeping your credit card balance on the lower end and making repayments on time
A credit card is one of the biggest indicators of your creditworthiness when applying for a loan. Exceptionally high balances on credit cards and late repayments will negatively affect your credit score.
Lower your debt-to-income ratio
The higher your disposable income, the better.
It proves that you have the available funds should you wish to apply for a loan or at any other credit service provider. Furthermore, it shows that you are able to, and have successfully managed your finances and overall debt repayments.
Basic financial management is all you need to maintain a desirable credit report and credit score.