A credit check is a lender's review of an applicant's credit history and credit report when they apply for credit. It helps the lender assess how the applicant has handled borrowing in the past.
A credit check, or credit inquiry, is a review of an applicant's credit report, usually obtained from one of the major credit bureaus, to help a lender evaluate a request for credit. Credit checks come in two forms: a hard inquiry, tied to a formal credit application, which can affect the credit score, and a soft inquiry, such as checking one's own credit or a prequalification, which does not affect the score. Some lenders weigh the credit report heavily in their decision, while others review factors such as income and ability to repay instead. A no-credit-check loan is one that does not rely on a traditional credit report.
A credit check pulls a credit report, which lists accounts, balances, payment history and public records, and often a credit score calculated from that report. Lenders use it to see how an applicant has handled credit before. Under federal law, a lender needs a permissible purpose, such as an application for credit, to obtain a consumer's report.
Not every lender checks credit. Some review income, identity and ability to repay instead, which can matter for people with a thin file or damaged credit. Either way, a lender that denies an application based on information in a credit report must give the applicant a notice saying so.
Consumers can see which lenders have checked their credit by reviewing the inquiries section of their own reports, and they can dispute information they believe is inaccurate with the credit reporting company and with the company that supplied it. A lender that skips the credit check entirely does not change those rights; the report simply plays no part in that lender's decision.
An example
An applicant applies for a card and a loan in the same week. The card issuer pulls a credit report and a score, sees a past collection account and offers a lower limit. The loan lender does not check credit and instead reviews recent pay stubs and ID. Each lender tells the applicant what its decision was based on.
Common misconceptions
Myth: Every lender checks credit before lending.
In fact: Many do, but some lenders review income and ability to repay without pulling a credit report.
Myth: Checking your own credit report counts against you.
In fact: Requesting your own report is a soft inquiry, and soft inquiries are not used in credit scoring.
Myth: A credit check shows your income.
In fact: Credit reports list credit accounts and payment history, not income. Lenders that need income ask for documents such as pay stubs.
What to check
- Whether the lender will pull a credit report, and whether it is a hard or soft inquiry.
- What the lender reviews besides credit, such as income.
- Which documents to bring.
- How the lender will explain its decision.
How this applies at Desert Rock Capital
Desert Rock Capital does not run a credit check. We do not pull a credit report, and the review does not use a credit score; it is based on your income and ability to repay. Bad credit, no credit or a past bankruptcy does not automatically rule you out, although tax liens, wage garnishments or an open bankruptcy can still lead to a denial.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.