What is a credit check?
When you apply for a loan, credit card, store card or mortgage, the lender will conduct a credit check before approving your application. To define, a credit check is the process of judging the creditworthiness of the borrower by reviewing his credit repayment history. The lender basically examines the borrower’s capability to abide to their financial responsibilities. A credit check gives assurance to the creditor that the lender will repay his loan regularly.

What things are taken into account while performing a credit check?
While performing a credit check, the lender will give you points on the following details.

Your employment status

Number of years you have lived in your current house

Your credit card details

Your income details

Other loans you have availed

Your repayment record

Number of arrears, defaults and missed payments you had

If you have any CCJ registered against you

Have you ever been declared a bankruptcy

After evaluating all this, the lender will make your credit report, mentioning your credit score according to his parameters.

How important is a credit score in case of unsecured loans?

An unsecured loan, by its very definition, is a loan without security, based entirely on the character and capacity of the borrower to repay. The capacity is judged by the credit score of the borrower. Borrowers are not required to pledge his home as security in the case of an unsecured personal loan deal. So, the lender assures himself by valuating the repayment history of the borrower.

Better the credit score of the borrower, better his chances of getting a good amount as unsecured loan. The risk involved for the lender in unsecured loans is pretty high since there is no asset to repossess in case the borrower defaults on the loan repayment. So, to compensate the risk involved for him, the borrower charges a high APR on unsecured personal loan deals. However, if the borrower has an excellent credit score with no arrears, defaults and he has a clean credit history, the lender may offer him an unsecured loan on low APR.


About The Author: The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his masters in business administration and is currently assisting Shakespearefinance as a finance specialist.

For more information about unsecured loans please visit: http://www.shakespearefinance.co.uk