Whenever you apply for a new credit product, a loan, or a credit card, the company you apply with will do a credit check before they approve your application.
Credit card companies, lenders, insurance companies and utility companies routinely do credit checks as part of their application process, to assess consumers’ history of borrowing and how they manage credit. They do this to determine whether they want to extend a loan or credit to you and they need to know that there is a good probability that you’ll repay your loan without defaulting on payments.
These checks can be as simple as a background check, or they can be a thorough review of your credit profile. These two options are referred to as soft credit checks and hard credit checks, respectively.
Many lenders typically offer a pre-approval facility, which will also trigger a ‘soft’ credit check.
A soft credit check is when a lender does a basic background check to see if you may likely be approved for a loan or other credit product. When you check your own credit record, it’s also referred to as a soft credit check. Soft credit checks do not harm your credit score.
The lender or financial institution you apply with may want a top-level view of your financial history so they can pre-approve any offers, or let you know what products you could potentially be eligible for.
A soft credit check doesn’t leave a visible footprint on your credit file, but it's recorded. This means that it won’t impact your credit score and no other lenders can see it. However, you’ll be able to see if anyone has checked your credit history as your profile will show a record of the inquiry.
An example of a soft credit check is a ‘mortgage in principle’ which allows you to look into the possible mortgages you may qualify for based on your circumstances at that specific time.
Should you want to accept the deal you can then make a formal application. The company will then look at your credit history using a hard credit check.
Keep in mind that even if you’ve been approved based on a soft credit check, you may still be declined after undergoing a hard credit search on your credit profile.
Companies that extend loan products or credit will do credit checks as part of their approval process. This can include banks, credit card companies, rental agencies, or even potential employers.
Companies will contact one or more credit rating agencies (CRS), such as Experian, Equifax, or TransUnion, to do a credit search. These are the three main CRAs in the United Kingdom.
These credit agencies each keep a record of your credit applications and payment histories and base their scores on similar criteria. So this means that if you got a ‘fair’ credit score from one agency, you’re very likely to get a similar rating from the others.
Here are some kinds of companies that do credit checks:
Letting agencies or landlords
Mobile phone companies
Banks, credit providers, and building societies
Depending on their reason for doing a credit check, they could do a soft or hard search. It’s important to remember that no one may do a hard credit check on your profile without your permission.
A hard credit check is a detailed look into your credit profile. This includes reviewing your personal information, your debts, account payment history, and more.
If you apply for too much credit in a short period, these credit checks could be an indication of financial problems and reflect badly on your credit record. A potential lender could see this as a sign that you are at a high risk of defaulting on payments.
If you want to get a credit card, make use of an eligibility checker - or pre-approval - before you go ahead with the full application. It is a great way to find out if you’re eligible for a credit card, and it may also help you to determine what type of card is suitable for you.
This way, you’re less likely to be refused with less chance of harming your credit profile.
If you are interested in seeing your credit report and reviewing the inquiries done by companies, consider getting your free credit report from one of the leading credit reporting agencies.
A hard credit check shows the lender an in-depth review of your credit profile. This includes your current debt, your income, your payment history, contact details, and more.
Lenders will also look for any negative marks on your credit report, like debt collection or late payments.
Also, keep in mind that a lot of hard inquiries over a few days may also indicate that you are a victim of fraud. This is another reason why you should keep track of your credit record and make sure that no inquiries appear on your profile that you have not approved.
Avoiding hard credit checks altogether is difficult; for example, if you have a credit card with an existing lender you may want to increase your credit limit and this will trigger a hard check.
If you want to add a loan product it will also trigger a hard credit check.
Lenders are required by the U.K. regulator to practice responsible lending and this means they may not overburden you with debt. One way to do this is to do a credit check to ensure you do not have too much debt. Another way you can avoid this is to do background checks of your own before applying.
Here are some tips to help improve your credit profile:
Check your credit report periodically to make sure that all the information about you is correct.
Use an eligibility checker to avoid too many hard credit checks on your credit profile.
Speak to potential lenders to find out more about the kinds of searches they carry out.
If you are thinking of applying for a loan or a credit product, make sure that your credit details are up to date and that you have no negative marks on your credit report that may influence your application.
Companies have to get your permission to perform a credit check on your profile. Most applications will include a consent request and require your signature to access your credit information and details.
If there are searches on your profile that you did not give permission for, you can ask these to be removed and the companies who performed the checks without your permission could be fined.
Yes. Your credit profile will have details of the company that performed the credit check. If you find that checks were done without getting your permission, you may report the company and they can face heavy fines. You can also request that inquiries be removed from your record.