What exactly is a 'credit check'?

Credit check

If you’ve applied for any kind of finance deal before, you will have likely heard of the term ‘credit check’.

However, you might not be fully aware of the entire meaning of a credit check and what it all entails, so our guide aims to take you through everything you need to know about what is meant by a credit check, what a soft credit search and a hard credit search is and how to go about checking your credit score.

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What is a credit check?

A credit check is also known as a credit search and it is the information from your credit report that a lender will look at in order to better understand your financial situation and affairs, i.e. how you deal with money and how responsible you are with your finances.

Credit reference agencies such as TransUnion, Equifax and Experian will take a look at your credit file and perform a credit check on you to determine your financial history.

This information then helps a company determine whether or not they will want to provide you with credit as it shows them how likely you are to be able to make repayments, amongst other things.

What does a credit check show?

A credit check shows evidence of any accounts where you’ve taken out credit in the past, such as credit cards, loans, mortgages, mobile phone contracts and more. It may also include any previous credit accounts that are now closed.

Many companies will perform a credit check on you for several different reasons; some of the types of companies that might carry out a credit check on you include:

  • Credit card providers
  • Banks or other lenders
  • Mortgage providers
  • Landlords and letting agencies
  • Employers
  • Mobile phone companies
  • Gas, water and electricity suppliers

Is it illegal to run a credit check without permission in the UK?

The Fair Credit Reporting Act is a law in place that prevents just anyone from running a credit check on you. In order for a company or business to run a credit check on you, they must have your consent first, or at least a valid and legitimate reason for carrying one out.

The law ensures that only businesses with a specific and legitimate purpose can run a credit check on you without your written consent.

What is a soft credit check?

A soft credit check, also known as a soft check inquiry is just an initial look at certain information on your credit report. Many companies perform a soft search first in order to gauge how successful your credit application is likely to be without carrying out a full investigation into your credit file and history.

A soft credit check has no impact on your credit score and the check isn’t visible to other companies, so they don’t affect your chances of applying for other types of credit in the future.

What is a hard credit check?

A hard credit inquiry on the other hand, is when a company conducts a thorough search into your credit history. This type of check is also recorded on your credit report, so other companies can see if you’ve previously applied for credit.

When you apply for credit, the provider will perform a hard credit check to see how suitable you are for credit and companies such as utility providers may also carry out a hard credit check on you when you apply for things like gas or electricity in a new home.

How many credit checks is too many?

If you apply for too many lines of credit over a certain period of time, this could negatively affect your credit score as if you’ve applied for lots of credit applications in a short amount of time, companies might think that you’re in financial trouble, so they’ll be less likely to lend to you.

There isn’t an exact figure of how many credit checks is too many, but you should aim to keep it to one or two maximum during the course of applying for credit - otherwise, you could end up negatively affecting your credit score.

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How long does a hard search stay on your credit file?

Most hard credit checks will stay on your credit file for up to 12 months. Some may only be on there for as little as 6 months, whereas some could stay on for years, it just depends on the type of credit that you’ve applied for.

Hard credit inquiries can’t be removed from your credit file just because you want them to be, so always think very carefully before you apply for credit as if the company carries out a hard credit check, this will stay on your credit file for quite some time.

Does checking your credit score affect your credit rating?

If you want to check your own credit score, then this is considered to be a soft check and therefore it won’t affect your credit rating.

There are no limits on how often you can check your own credit score and it’s always a good idea to do so before you apply for any kind of credit in order to see how likely you are to be accepted. 

You might also want to try and check your credit score a few months in advance before you apply for credit such as a mobile phone contract, so you have time to try and improve your score if you need to before you actually apply.

What information is needed for a credit check in the UK?

There are several pieces of information that you’ll need to provide when running a credit check, these include:

  • Personal details such as full name, date of birth and address 
  • Proof of identity such as driving licence
  • Proof of your last three addresses
  • Account overdrafts
  • Payment records
  • Whether you have any other kind of credit
  • If you’ve ever declared bankruptcy 

Before applying for credit, ensure that you’re aware of what is involved in a credit check and how it could potentially affect your credit score. Try to check your own credit history before you apply for credit in order to see your eligibility. 

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