What is a Credit Check?
A credit check is a process used to determine an individual’s creditworthiness. It is an essential step in every loan, and mortgage, application process. Credit checks are usually performed by a lender or creditor to help assess the risk of extending credit to an individual.
When a credit check is performed, the lender will look at the individual’s credit score, payment history, current debts, and other financial information. This information helps the lender determine if the individual is likely to repay the loan. Credit checks are also used to check for signs of fraud or identity theft.
Why is this term important?
Credit checks are important to ensure that borrowers are able to make their payments on time and in full. They also help determine the interest rate lenders will charge on the loan.
Running a credit check is one of the first things a mortgage lender, or mortgage broker, will do when a buyer applies for a mortgage pre-approval. It’s important that buyers have a healthy credit score, allowing them to secure the mortgage they need.
Here is an example:
Let’s say a homeowner applies for a mortgage. The lender will run a credit check to determine the homeowner’s creditworthiness. The lender will review the applicant’s credit score, credit history, and other financial information to decide whether or not they are a good candidate for the mortgage loan. If the credit check finds that the applicant has a good credit score and financial history, the lender may approve the loan and charge a favorable interest rate.