Credit Check: What It Is, Who Can Request One, and What It Shows

The basic definition and why the term is used loosely

A credit check is the act of requesting and reviewing a consumer report, which is a file about a person's borrowing and repayment history assembled by a nationwide credit reporting company. The file is built from data supplied by furnishers, which include banks, credit unions, card issuers, collection agencies, and some utility and telecom providers.

In everyday use, the phrase covers three different moments. It can mean the request itself, the review of the file that follows, and the decision a requester makes based on what the file contains. Because the same words describe all three, two people discussing a credit check may be describing different parts of the same process.

The three nationwide credit reporting companies maintain separate files, and not every furnisher reports to every company. As a result, the same person can have reports that differ in which accounts appear, how balances are stated, and whether a given item is present at all.

Who may request a consumer report

The Fair Credit Reporting Act does not permit open access to consumer reports. A company may obtain one only when it has a permissible purpose, a category that includes evaluating an application for credit, underwriting insurance, screening a rental application, and certain government or court functions. A company that pulls a report without a permissible purpose can face liability under the statute.

Employment screening works differently from lending. An employer or prospective employer generally must obtain the applicant's written authorization in a document separate from the employment application, and the applicant must be told that a report may be obtained. If an adverse decision is based in whole or in part on the report, additional notice requirements apply.

Consumers also generate their own requests when they order reports or use a monitoring service. Those self-initiated requests appear in the file's inquiry records but are treated differently from requests made by a lender reviewing an application.

• Applications for credit, including cards, auto loans, mortgages, and personal loans
• Rental and lease applications
• Insurance underwriting in states where it is permitted
• Employment screening with written authorization
• Account reviews by an existing creditor

Hard inquiries and soft inquiries

Every request for a consumer report is logged as an inquiry. Inquiries are sorted into two categories based on the circumstances. A hard inquiry occurs when a company requests a report in connection with an application the consumer initiated, such as a card application or a loan application.

A soft inquiry occurs in situations where no new credit decision is involved. Examples include a consumer ordering their own report, an existing creditor reviewing an account it already holds, and prescreening programs in which a company obtains a list of consumers who meet certain criteria to send an offer of credit.

The two categories are stored and displayed differently. Hard inquiries are generally visible to anyone who later obtains the report with a permissible purpose, while soft inquiries are typically shown only to the consumer and are not disclosed to third parties who request the file.

What appears in the report being checked

A consumer report typically contains identifying information such as name, current and prior addresses, and Social Security number; a list of accounts with balances, credit limits or original loan amounts, payment history, and account status; collection accounts; public record information such as bankruptcies; and the inquiry records described above.

A report does not contain a credit score unless one is ordered or supplied separately. Scores are produced by scoring models that read the report data and apply their own calculations, which is why the same file can produce different numbers under different models. The report is the input; the score is an output.

Report content is also subject to accuracy rules. When a consumer disputes an item, the credit reporting company must conduct a reinvestigation, generally within thirty days, and notify the furnisher of the dispute. The furnisher is separately obligated to investigate and correct information it reported inaccurately.

Credit checks outside of lending

Landlords commonly review consumer reports as part of tenant screening, often alongside a separate background or eviction-history report. Utility companies and wireless carriers may review a report when setting deposit requirements for new service. Insurers may review reports in states that permit the practice for underwriting.

Employment screening reports are a distinct product type. They are assembled for employment purposes and may omit certain data, such as date of birth, that is included in a standard consumer report. Employment screening is also governed by the written consent requirement described earlier.

Because each of these uses has its own rules, a consumer who is denied a rental, a deposit waiver, or a job may receive different notices depending on the context. The notice generally identifies the company that supplied the report and explains how to obtain a copy.

How consumers obtain their own reports

Every consumer is entitled under the Fair Credit Reporting Act to one free report from each nationwide credit reporting company every twelve months. The federally authorized source for those reports is annualcreditreport.com, which is operated for that purpose and does not require a payment or a subscription.

The nationwide credit reporting companies have extended access on that site beyond the statutory annual entitlement, so reports are available more often than once every twelve months. Ordering a report from the official source does not generate a hard inquiry and does not affect any score.

Some consumers order all three files at once, while others stagger the requests across the year to observe changes over time. Reports ordered directly through annualcreditreport.com come from the companies themselves, while reports obtained through third-party services may be reformatted and can carry different terms.

Errors, disputes, and identity concerns

Because a credit check can influence a decision about a loan, a lease, or a job, the accuracy of the underlying file matters. Consumers who find an account they do not recognize, a payment reported incorrectly, or a balance that does not match their records can file a dispute with the credit reporting company that supplied the report.

A dispute is submitted to the credit reporting company, which forwards relevant information to the furnisher and conducts a reinvestigation. The company must provide written results, and if an item is changed or removed, it generally cannot be reinserted without notice. Consumers may also dispute directly with the furnisher.

When an unfamiliar account appears and fraud is suspected, the situation enters different territory. IdentityTheft.gov, operated by the Federal Trade Commission, provides an official reporting process and a recovery plan for victims of identity theft. The Consumer Financial Protection Bureau also publishes sample dispute letters and a complaint process for unresolved problems.