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6 Things Families Need to Know About Credit Checks

January 27, 2023

Families in the United States are facing a lot of debt today, with the Federal Reserve reporting household debt reached $16.5 trillion in 2022. To make matters worse, the increase in household debt has been at its most rapid in two decades. 

Mortgages, student loans, and home equity lines of credit have been among the biggest factors piling onto these debts, with families having to use credit cards and apply for more loans in staggering numbers. With the current climate, it’s important to know about credit checks and how they impact your family.

Credit Checks Will Cover Your In-Depth Financial History

A credit check basically provides your complete credit reports to the company or institution that requests an inquiry. This covers your lines of credit, payment history, bills, credit limit, credit score, outstanding loans, and any credit accounts. For families, this will usually cover household debt and the specific financial behavior of the member being checked. This can be the head of family or anyone who is getting an inquiry for a loan, investment, or potential job.  

The best way to ensure a good outcome from a credit check is to have all your payments in order and make sure you stick to healthy financial habits. You’ll also want to have your own records to keep track of payments. Our article on “Using a Budget to Effectively Manage Your Debt” covers prioritizing debt management, which is essential in maintaining a good credit score. A good way to approach this is to create a detailed list of your expected income and any savings and tally it with expected expenses. From there, you can develop a payment strategy to tackle your debts. 

Hard and Soft Credit Checks Are Not the Same

There are two kinds of credit checks, and it’s important to note the distinction between them. Upgraded Points’ post on hard vs. soft credit checks notes that the former actually impacts your credit score while the latter does not. Their data reveals that credit checks can take up 10 percent of your overall credit score, so it’s not something you should overlook. 

Lenders and landlords are the most common bodies that go for hard inquiries. These stay on your credit report for a while and lower your score, so it’s advised not to take on too many applications or activities that will net you too many inquiries in a short span of time. On the other hand, you can actually do a soft credit check yourself to get a good picture of your credit standing.

Hard Credit Checks Are Necessary for Loans

As previously noted, lenders will need to do a hard credit check to assess your eligibility for a loan. You will be informed that they need to make an inquiry, which can help you prepare for the ding your credit score will take. 

The reality is that you can’t apply for a student loan, mortgage, credit card, auto loan, or personal loan without receiving a hard inquiry. The information they get from your report will determine your approval. Rental applications may also require a hard credit check, though some landlords may opt for a soft inquiry instead. 

Soft Credit Checks Don’t Need Your Approval

The good thing about soft credit checks is that they don’t affect your overall score. That said, your permission is not actually needed for a soft inquiry to be performed. This means that certain aspects of your credit report can be checked without your knowledge. 

It’s not something you should worry about, though, as it won’t impact your credit report and any efforts you may be taking to get out of debt. 

Hard Credit Checks Stay On Your Report for More Than a Year

Hard credit checks will usually be reflected in a credit report for over two years, though only your most recent ones are weighed most heavily. Lenders also won’t be too particular with your report if they see that inquiries are a few months apart. That said, it’s still a good idea to take note of how many hard inquiries you’re taking on every year so you don’t run the risk of lowering your score too much.

Employers Will Often Pull Soft Credit Checks

Families seeking employment opportunities should note that employers are legally allowed to conduct soft inquiries. According to CNBC’s article on employer credit inquiries, about a third of companies will do credit checks on certain candidates. 

It’s also the employer’s prerogative if they will consult with you on this if you are a job applicant. The credit check will generally be used as an added screening tool to gauge your responsibility, see how you handle finances and have an idea about what obligations you are facing. 


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