Credit checks explained: what you need to know

Credit checks can be confusing and many of us are unsure what they entail. That is why we have put together this handy guide, covering all the info you need to know.

What is a Credit Check?

A credit check is when a company looks at your financial history in order to assess your ability to repay the debt. The information on your credit report will include how much you have borrowed, the kind of credit you have and how well you have managed your lending, e.g. if you have any late or missed payments on your file.

Your borrowing behaviour helps to generate a calculated score(also known as your credit rating), which reflects how much of a risk you may pose to a lender. As such, this can impact both how much you can borrow and at what interest rate.

When is Your Credit Report Checked?

When you make an application, it is likely that the lender will want to check your report. Companies that may want to access your file could include banks, letting agencies and utility providers. This can cover all types of borrowing, such as a mortgage, loan, credit card, mobile phone contract or car finance.

Most companies will ask for permission to assess your application and access your report via Equifax, Experian or TransUnion (formerly Call Credit) – these are the credit reference agencies in the UK.

What Information Can They View?

When making your application, the lender will consider the information you provide and the details on your credit file. This will typically include:

Full name and birthdate
Current and previous addresses
Types and amounts of credit you have
The accounts you have open or have settled
Overdraft amount
Other application searches
Any joint credit accounts (e.g. a mortgage with your partner)
Repayment history (missed payments, CCJs, bankruptcy etc.)

What is the Difference Between Hard and Soft Credit Checks?

There are two types of credit checks: soft and hard. Also known as a credit inquiry, there are key differences between the two.

A soft search is often used to assess your chances of being accepted for credit before submitting a full application. This is usually carried out using information you provide to a lender, rather than through your report. As such, these soft eligibility searches do not appear on your file and do not impact your score.

During a hard search, a company will access your full file. This will leave a mark or footprint on your file, something that is visible to other lenders and can impact your score. As such, if you make multiple applications in a short period of time, it can lower your rating and therefore make it more difficult to borrow.

Hopefully this guide has helped you understand what credit checks are and how they work, to help you take control of your financial future.

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