Credit check

How to run a credit check

Dig Deeper: How to Assess Your Customers’ Credit Risk

Running a Credit Check: Interpreting the Results

Lin says your standards for weighing results should be established before you start running credit reports.

“You should have a consistent threshold of what a good score is,” he says. “You don’t want to be discriminating about how you do it.”

If you go through one of the major credit reporting agencies, you’ll get back a coded document for easy digestion, Henson says. It will mainly be a graded system: a grade of 1 is the best and means the debt is paid on time, all the time; a 9 means there are tons of bad debts and late payments.

Financial experts warn against jumping to a conclusion no matter what the report says. According to Callahan, up to 75% of all reports contain incorrect information, ranging from the wrong home address number to inaccurate bankruptcy details.

“You really have to take a credit report with a grain of salt,” he says.

It is important to have a plan in place and a set of standards for what will signal red flags.

You must give the subject of the report a chance to respond as well. They should be able to produce authentication for any debt payment plan or other major financial items that appear on the report, Callahan says.

The report should be the beginning of the conversation, not the end, Lin said.

“Ten percent of the country is unemployed right now,” he says. “A lot of people have very good reasons for not paying their bills on time.”

Dig Deeper: Clean Up Your Credit

Running a credit check: Take a test

You can get a sample of what to expect by running your own personal credit report. The Fair Credit Reporting Act allows consumers to receive one free credit report per year, and some agencies will give you a free credit score more frequently.

Running your own check allows you to keep tabs on your own financial issues such as identity theft, while also making you aware of the potential for inaccurate information.

“We have a very good track record when it comes to accuracy, but when you’re processing as many files and entries as we do, sometimes things happen,” said Tim Klein, vice president of public relations for Equifax. “It makes sense to check and make sure it reflects your situation.”

Government regulations make it easy to go online and dispute the details of your report, he says.

“From a small business perspective, it’s a no-brainer,” he says. “Just in the overview and understanding of your financial situation, it is important to know what your credit rating is.”

Dig Deeper: Two Ways to Get Free Credit Scores