How do Hard Credit Checks help Loan Providers?

Mar 07, 2016

Hard credit checks are extremely important.

Loan providers are contacted every day by prospective customers. But how does a hard credit check help a loan provider and why?

A Credit check in short is the screening process of someone’s financial history. It will require the data of a person’s credit repayment habits. It will also show the number and frequency of loan applications submitted by an individual.

Why is this important to loan providers?

Loan providers are in a tricky situation. Their business model ticks when they provide people with loans. But, their businesses will only stay afloat as long as their customers pay their debt on time. Customers that default on payments turn into bad debt for the loan providers. When such customers are no longer able to repay a loan the loan providers lose the money equal to the outstanding balance of that bad credit loan. So to weed out the lies of untrustworthy applicants loan providers will perform hard credit checks. These hard credit checks will create a platform on which reasonable and fair decisions can be made regarding the approval or dismissal of loan applications (as determined by the National Credit Act).

How do hard credit checks take place?

A loan provider will contact the credit bureaus of South Africa like for instance Experian, Trans Union and/or Compuscan to name a few. These credit bureaus exist to document the credit histories of South Africans. They will ask for the credit report of a specific person according to their details. Details like your ID number, full name and address. Some loan providers will cover the cost of the hard credit check. Other loan providers will charge a service fee to finance the credit check.

Hard credit checks are never performed to judge applicants unfairly. Whether you have a good credit- or a poor credit record – a hard credit check serves as a measuring stick to quantify your capacity to repay debt. A hard credit check counts in your favour, because it will ensure that you won’t receive a loan that you can’t repay.

Fincheck wants you to prosper without amassing debt on the way. Go have a look at the offers on the Fincheck loan comparison page. We partner only with responsible and qualified loan providers.

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