Whenever you apply for a loan, even if it's only for a $300 credit card, your creditor has the right to check your credit history before approving the loan. It's important not only to pay your bills on time, but to avoid applying for too many credit cards at once -- every serious inquiry into your credit history can lower your score by as much as five points.
Written Permission
Employers and lenders must get written permission before they can run a credit report on a borrower. State in writing that you intend to run the borrower's credit report as part of his job or loan application and have the borrower sign the statement. The borrower's signature indicates that he consents to you running the report. The credit bureaus must have this written notice on file before they can release the borrower's credit report to you.
Permissible Purposes
Equifax states that it will only release a credit report if the person inquiring has a permissible purpose for the inquiry. Permissible purposes include evaluating the applicant's creditworthiness for a loan, as a condition of employment, or to collect a debt. Equifax also releases credit reports to law enforcement with a court order or subpoena requiring the release of the credit report as part of an ongoing investigation or lawsuit.
Free Credit Report
Borrowers have the right to request a free credit report on themselves once every 12 months from each of the three credit bureaus. Some borrowers get all three credit reports at once, while other borrowers get one report every four months so that they can monitor their credit history throughout the year. Borrowers also have the right to request a free credit report if any creditor declines their application.
Considerations
Every time a creditor checks your credit for the purpose of determining your eligibility for a loan, it negatively affects your credit score. Lending Tree reports that these types of checks, called hard pulls, lower your score about five points; the effect lasts about six months. Thus, if you want to get a loan for a house or be approved for an apartment, you should refrain from applying for other credit until your loan is approved so that you don't risk being declined due to too many hard pulls on your recent history. If an employer checks your credit, it does not affect your credit score.
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