How to Do a Credit Check on a Potential Client

If you want to give credit to a new customer or client, you must first do a credit check. Learn how to do a credit check.

Why Perform a Credit Check?

It is recommended practice to investigate a potential customer’s credit history before extending credit to them (whether they are individuals or businesses). A poor credit history may be used to predict that the person or entity requesting loan will not return the debt on time, or will fail on the obligation entirely. A credit check may help you assess the degree of risk involved in granting credit and determine if the reward of extending credit is worth the risk. Remember that negative credit does not have to spell the end of a relationship. You might always seek an alternative payment method, such as paying in cash rather than providing them credit.

How to Get Permission to Do a Credit Check

The credit history of an individual or a corporation is confidential. As a result, before you may lawfully access the information, you must first get permission from the owner of the credit history. Having the other person submit a credit application is an expedient approach to get authorization and other essential information. A credit application often comprises the following items:

DBA and business names
Owner’s name (s)
Structure of the company: Single proprietorship, Limited Liability Company (LLC), C-Corp, S-Corp, or Nonprofit
Contact information such as your address, email, phone number, and fax number
Taxpayer identification number or social security number
Years of experience in business
Commercial references
Bank recommendations
The desired credit amount
A credit report access authorisation

How to Get a Credit Report

After the applicant has provided you with the relevant information, references, and a signed permission to view the credit report, you may call a credit agency such as Dun and Bradstreet to get the credit report. In most cases, there is a cost. Instead, you might request that the credit applicant provide a copy of their credit report along with their completed application.

Credit checks are a crucial step before granting credit because they enable you to make an educated choice about the amount of risk connected with giving credit to the individual or company. If you ignore this crucial step, you will be more likely to need the assistance of a debt collection firm in the future.