Borrowing money is hardly known for being a fun process. It’s not made any easier when lenders and credit reference agencies use confusing financial terms. If you’ve been reading up about credit, you may have found yourself asking ‘what is a credit check?’ and wondering why you should care in the first place. To make things more clear, here’s everything you need to know about credit checks and why they matter.
What is a credit check?
Let’s start with the basics. Your individual credit file contains lots of important information about your financial history. This includes personal details like your address and employment, as well as things like your payment history and the types of credit you currently use.
So what is a credit check? Lenders or credit reference agencies can use the information from your credit file to see where you stand in relation to financial products. For instance, it can help to screen potential applicants before they even apply for a product, to check if they are likely to qualify for a loan, credit card or mortgage.
It can also be used to do an in-depth assessment once you actually make an application. When someone accesses your credit file to see your financial position, this is what’s called a credit check (also known as a credit search).
But this is where things get a little trickier. There are actually two types of credit searches, and they each have a different impact on your credit file. Understanding the difference between the two is important if you don’t want to damage your credit file and affect how lenders see you in the future.
What is a hard credit search?
A hard credit search happens when you submit an application for credit. Most lenders will do a thorough check of your credit file when deciding whether or not to accept your application.
When they do a hard credit search, lenders will be looking for any ‘red flags’ on your credit file. This may include a missed or late payment, a county court judgment, or bankruptcy. This kind of check is recorded on your credit file permanently, for any other lenders to see.
So why does this matter? Well, a hard credit search stays on your record. Lots of hard searches will negatively affect your creditworthiness, and how future lenders view you. Lenders may think you are desperate for cash if they see a bunch of recent applications on your file.
The main takeaway here is that you shouldn’t apply for credit when you know you probably won’t be approved. It can damage your creditworthiness and put your future chances of getting credit at risk. That is why it is so important to understand the state of your credit file before you make your application – you can save yourself trouble in the long run.
To see what shape your credit file is in, you can sign up for a free Credibble account and get your Lender Score. In this score, we’ll break down all the factors that lenders use to decide if they’ll give you credit, and show you where exactly you stand. Plus, with personalised pointers in your Score Booster, you can increase your chances of being accepted.
What is a soft credit search?
A soft credit search is more like a snapshot of your credit file, rather than an in-depth examination. They can be used as a way to check if you’ll be eligible for a particular credit offer before you even apply. Unlike a hard credit search, this type of credit check is not visible to other lenders.
Have you ever received a credit card application through the post, or a SIM upgrade for your mobile contract? You usually receive these kinds of things after a soft credit search has been done on your file. While it’s not a guarantee that you will qualify, it means this initial credit search did not pick up on any red flags.
There are places online where you can enter your details and see a list of potential loans and credit cards for which you could get accepted. This is another key use for soft credit searches. This does get recorded on your credit file, but it is not visible to any other lenders and will not impact your creditworthiness.
As you may have already gathered, soft credit searches can be done without your consent, but hard credit searches cannot. Only when you fill in a formal application and submit it to lenders can they do a hard credit check, which then stays on your file for future lenders to see.
Do credit checks affect your credit score?
If you’ve been paying attention, you may have worked this one out – a hard credit search will affect your credit score, but a soft credit search won’t. It’s better to only apply for credit when you already know you’ve got a good chance of being accepted, if you want to avoid hurting your score.
What you might not know is that your credit score isn’t what lenders actually check when they make decisions about your application. Still, too many hard credit searches on your credit file damages your overall creditworthiness, which lenders do care about a lot.
Our Silent Search feature takes things one step further than a soft credit check. When you create a Credibble account we can use your data to personalise your browsing experience and help you find offers suited to you.
Because we already have your credit file, this leaves zero trace on your credit, so there is zero risk to you. So you can reduce the chance of being rejected on your application, and there is no chance of getting stuck with hard checks on record that could scare off lenders in the future.