Before a bank allows a person to open an account or take out a loan, the bank will generally check the person's credit score. This is because whether the person is borrowing money or merely starting a check account, the bank can be placed in a position in which the individual owes it money. The bank can check the person's creditworthiness by providing information to credit reporting bureaus, which keep credit reports on most individuals.
Credit Scores
A person's credit score is a numerical indication of his creditworthiness. Banks, as well as other creditors, use this information to determine whether a person should be provided credit and, if so, at what rate of interest the person should receive on this credit, if interest is applied. A credit score is determined using the data that is contained within the individual's credit report, which is made up of information related to the person's lending history.
Credit Reports
Credit reports contain information related to loans that the person has taken out in the past or other instances in which the person has been extended credit in the form of a service. Credit reports are constantly updated and are available to creditors, such as banks, who purchase them from credit reporting bureaus. Only companies with a legitimate business interest in an individual can research an individual's credit report, as it is not public information.
Credit Reporting Bureaus
Banks can obtain credit reports and scores from credit reporting bureaus by providing information that identifies an individual. For example, when the individual approaches a bank about taking out a loan or starting an account, the bank will request the individual provide information about himself, such as his name and Social Security number. This information will then be relayed to credit reporting bureaus, which will provide the bank with the individual's credit score.
Loans
When a person applies for a loan from a bank, the bank will usually check not just check the borrower's credit score, but will use other information to determine the person's creditworthiness and the rate at which it is willing to issue the loan. For example, the bank may require that the person provide documents that indicate his current income as well as proof of any assets he has, as well as information on what he wishes to use the loan for.
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