The ultimate guide to credit checks & searches

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Whether you need a new credit card or are applying for a personal loan or mortgage, the lender will run a credit check on your file. This gives them important information about your financial situation, so they can make an informed decision on whether to lend to you.

In this guide, we’ll cover everything you need to know about credit checks, including what they’re used for, how to improve your credit score and the difference between a soft and hard credit check.

 

What is a credit check?

A credit check – or credit search – is when a lender looks at your credit report to better understand your financial situation. This helps them assess the likelihood you’ll be able to manage your repayments.

Some examples of companies that may run a credit check on you are:

  • Banks and building societies
  • Letting agencies/landlords
  • Mobile phone providers
  • Credit providers
  • Utility suppliers (e.g. gas, water and electricity)

 

 

What does a credit check show?

A credit check will show the lender information that will help them to assess the level of risk they’re taking on by lending to you. This will include a range of key information about you including the following:

  • Your full name, address and date of birth
  • If you’re on the electoral roll at your current address
  • Your current account; including any overdraft
  • Previous hard search credit application searches and footprints
  • Any current loans, credit cards and mortgage accounts you have, plus their start date and the amount
  • Whether you have any joint accounts – with a spouse, for example
  • Information on missed repayments and their frequency
  • Your debt history including bankruptcy and County Court Judgements (CCJs)

Lenders will use this information along with other checks to decide whether you’re eligible for the line of credit that you’re applying for. They can also utilise other information to ensure that you can afford and manage the loan repayments.

Having your full name, address and date of birth on the electoral roll for example, can help the lender verify your identity, reducing the risk of fraud. Whereas your account information and history of missed payments, defaults or bankruptcy, can provide a good understanding of your current and previous financial commitments and how well you’re handling them – which can also affect the amount they’re happy to lend you or if they are willing to lend to you at all.

 

What is a good credit score?

All Credit Reference Agencies (CRAs) have developed a credit scoring profile and when you sign up to a CRA you will see your score.  You should bear in mind that CRAs tend to use different formulas and can source different data which can mean your credit score may not be the same across all CRAs. This is typically a number that ranges from 0 (very poor) to 999 (very strong). Different lenders will be looking for different things in potential customers and therefore will see different scores as good or bad.

When applying for credit, a good or excellent credit score could mean you’re more likely to be accepted or offered better rates. This is important as it helps to bring down the overall cost of borrowing in the long-term. Therefore, it’s important to keep an eye on your credit score and look at ways that you can further improve it.

 

What affects your credit score?

Your credit score can change from month to month, depending on how well you manage your finances.

There are several factors that can affect your credit score. These include:

  • Your payment history: Missed payments will negatively affect your credit score as it shows you have a history of not being able to keep up with your repayments efficiently.
  • Affordability: Being able to afford the repayments of the product you’re applying for is important. This can be based on your salary and financial commitments.
  • Credit utilisation: How much of your available credit you’re using and how much you owe.
  • New credit: How much new credit you have and whether you’ve made a lot of applications for credit recently.

 

Will a payment deferral impact my credit score?

If you’ve been financially impacted by Covid-19, and as a result had to request a payment deferral, this won’t impact your credit file with Credit Reference Agencies. However, it is important to note that lenders may take it into account using other sources of information when making future lending decisions.

If you have any queries about payment deferrals and how they impact your credit report, speak to your lender.

If you’re a Shawbrook customer and are experiencing financial difficulties, please get in touch. For more information, visit our support page.

 

How can I improve my credit score?

While sadly there’s no quick fix, if you’re looking to improve your credit score, there are multiple steps you can take to improve your credit score over time.

 

7 tips to improve your credit score

  1. Always pay your bills on time
    Failure to do so shows a lender that you struggle to manage your financial commitments.

  2. Make sure you’re on the electoral roll
    This helps lenders easily verify who you are.

  3. Make sure your name is on utility bills
    Regular monthly payments are a great way of showing you can reliably cover your bills, so make sure your name is on the gas bill or your mobile phone contract.

  4. Don’t use your entire credit limit
    Try to avoid maxing out your credit card as this could suggest you’re not managing your credit responsibly.

  5. Don’t make multiple credit applications within a short period of time
    These are left as ‘marks’ on your file and can make you seem desperate for credit, which could decrease your chances of being accepted.

  6. Do a soft search first
    Soft searches will be recorded in your credit history but will not be seen by other lenders. They can assess your financial situation to see how likely it is you’ll be accepted for your application.

  7. Check if you’re financially linked to another person
    Having a spouse, friend or family member linked to you through a joint account for example, can affect your credit rating, especially if their credit rating is poor.

 

How long do credit searches stay on your file? 

Soft searches will be recorded in your credit history but won’t appear to other lenders, so you can check your eligibility for a loan without affecting your credit score. Most hard checks, however, will leave a mark on your account for around 12 months.

 

What is a soft credit check?

A soft credit check lets providers look at your credit report without leaving a footprint visible to other lenders, although you can still see them. This includes things such as identity checks and quotations, where a lender confirms your details are correct. For example, when you apply for a personal loan at Shawbrook Bank, we’ll initially carry out a soft credit search to provide you with a decision and personalised quote that won’t impact your credit score. This means you have a chance to review the quote and shop around before confirming the loan application. We will only carry out a hard credit search if you want to proceed with the application.

 

 

How are soft and hard credit checks different?

 

A soft credit check can happen for a number of reasons. For instance, when you search your own credit report  if a landlord or potential employer needs to run a check before renting out their property or employing you or when you check your eligibility for a loan online. A soft credit check footprint isn’t visible to anyone other than you, so it won’t impact your credit score.

On the other hand, a hard credit check is when a lender makes a complete search of your credit report after you have formally applied for credit. Each hard check is recorded on your report and will be visible to other lenders if you apply for credit. If you have multiple hard checks visible on your file, this could reduce your credit score as it suggests to a lender that you’re too keen for credit causing them to question your financial situation. Some examples of when a hard check will be carried out include when you apply for a credit card, loan or mortgage, when you want to sign up to a utility company or when you apply for a pay-monthly mobile.

 

Can I avoid hard credit checks?

 

If you apply for a loan, mortgage, or credit card, you can’t avoid a hard check, and you might get declined if you don’t meet the requirements. That’s why it’s worth using an eligibility checker or a soft search to check your likelihood of getting approved before you apply. This way you can avoid a hard check negatively impacting your file if you don’t meet the requirements for approval. It’s also a good idea to use a credit reference agency to check your credit report so you understand what’s included and can correct any inaccurate information. Some examples of the main credit reference agencies you can use are Equifax, Experian, and TransUnion.


How many credit searches is too many?

 

A lot of credit applications within a short amount of time, adding lots of hard searches on your credit file, could signal to a lender that you’re in financial trouble or are relying too much on borrowed money. This makes you a riskier investment and therefore less likely to get approved for your credit application.

Alternatively, there is no limit on the number of soft searches you can do, as these don’t affect your credit score and aren’t visible to anyone other than you and the lender who has carried out the search.

 

Get your personalised quote now

Are you considering a personal loan? At Shawbrook, we believe in being transparent and fair with everyone that applies for a loan with us. When you apply for an instant quote, we’ll give you a clear picture of your guaranteed and personalised rate from the start without impacting your credit score. 

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