Finance Matters: What Do Companies Look for When They Perform a Credit Check on You?

by Susan Paige on January 18, 2019 · 0 comments

Credit checks have become a lot more common than in the past. It used to be the norm for a credit check to be conducted only when a given consumer sought a loan or other type of financing.

Today, companies of many different kinds use credit checks and reports to assess whether particular people are worth doing business with. While credit checks are still most often used for deciding whether to offer loans, there are quite a few other reasons they are commonly called for, as well. Understanding why companies use credit checks and what they look for can benefit just about anyone today.

Many Reasons for Businesses to Conduct Credit Checks

The business of most kinds is inherently uncertain, but companies that run well and responsibly, always try to manage and minimize their risks. While a credit check or even a detailed credit report will only ever give a partial picture of the indicated person’s history, any information will always be better than none.

Many different types of companies today, therefore, make regular use of credit checks to assess the risk represented by particular people. Some of the kinds of businesses that are most likely to use credit checks regularly today include:

  • A person’s history as a driver or homeowner will often provide an insurer with some idea as to how much of a liability that individual could be as a policyholder. Many insurers today also use credit checks to help set premiums on particular policies. Adding this additional information to the equation allows an insurer to make actuarially sound conclusions about the risk posed by each applicant.
  • Evicting a tenant who is in breach of a lease inevitably costs a landlord a great deal of money. Many landlords now use in-depth credit checks to help select those would-be tenants who are most likely to live up to their responsibilities.
  • Especially for jobs that are particularly sensitive, businesses looking to hire frequently make heavy use of credit checks, as well. Conducting a credit check on candidates who reach a certain stage of the hiring process will make it easier to weed out those who could cause damage to a company or its reputation.

A Definite, Though Limited, Picture of a Person’s Past

Companies of these kinds and others now see credit checks as useful in helping them assess the qualities and merits of particular individuals. Naturally enough, lenders still make heavy use of credit checks themselves, as well. Some of the types of issues that credit checks are most often used to pin down relate to concerns like:

  • Whether for someone seeking a new job or an applicant for a self-employed mortgage, companies frequently find it helpful to verify information that has been provided to them. A credit check can be used to ensure that an applicant for a loan, job, or apartment is being forthright and transparent.
  • People who keep up with their debt related obligations tend to be responsible in other ways. Anyone from a lender to an insurer will normally prefer to work with reliable individuals.
  • A credit check can also be used to get a limited idea as to a person’s character. Some credit reports show clear signs of past fraud, while others can reveal patterns of credit usage that could signal a lack of financial and personal discipline.

Good Credit is Useful for More Than Obtaining Loans

There are quite a few reasons why credit checks are commonly used today and many different types of organizations that rely on them. As such, most consumers will do well to try to keep their own credit histories in sound shape in order to make life easier in various important ways.

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