Whenever you make an application for a new credit product it can feel like you’re rolling the dice on your credit score. Loqbox takes a peek behind the scenes so that you can make credit checks work for you!
OK, so what is a credit check? A credit check (or credit search) is a check that companies do when you apply for credit. It could be for a mortgage, a loan or a credit card.
The company offering the product or service will check your history of borrowing money and managing credit. They also look at any other credit you have, and anybody you are financially linked to. If you have a joint account, for example, the person on that account will be tied to your credit score.
This helps companies work out your level of risk and whether they will take you on as a customer.
There are two types of searches: a soft credit check (or soft search) and a hard credit check (or hard search). But what’s the difference between them, I hear you ask?
What is a soft credit check?
In the UK system, a soft credit check shows details from your credit report to work out your creditworthiness. It does go on your record but soft credit checks don’t impact your credit score.
These soft searches are either done by you, or by companies doing pre-checks. Companies that could do soft searches (with your permission) include employers, landlords, banks or retailers.
The sort of details that will show on a soft credit check include:
- Your home address
- Your date of birth
- And other personal information that can be checked against your application (to help reduce fraud)
Soft searches don’t show:
- Defaults or county court judgments (CCJs)
- Who you shop with, or any friends or family that you send money to (transactions)
If it all checks out the company or lender will be able to proceed to the next stage.
Only you can see soft credit checks on your record and it doesn’t matter how many are listed. It has no impact on your credit score. You can also use soft credit checks to keep an eye on your credit report and give yourself the best chance of approval (more on that later).
What is a hard credit check?
A hard credit check is a deep dive into your credit record. This would be done as part of your application for a mortgage, new bank account, credit card, or loan.
A hard credit check will show any missed payments, defaults or CCJs listed on your file from the past six years. Even if you have passed an eligibility check through a soft search, there’s a possibility you will still be declined after a hard search. And unlike a soft search, a hard credit check will leave a mark on your report.
Too many hard searches on your record in a six month period will hurt your credit score. Lenders might think that multiple hard credit checks on your file are an indication that you’re struggling with your finances and looking for quick or irresponsible solutions. This makes you appear to be a higher risk for lending.
It’s not just loan and mortgage applications which trigger hard credit checks. You can also get them from companies where you are already a customer. If you try to increase your overdraft with your bank or change your mobile phone package, you might be subject to a hard credit check.
What is the difference between a hard credit check vs soft credit check?
The easiest way to think about it is that:
A soft credit check doesn’t leave a mark on your credit file and has no impact on your credit score.
A hard credit check is recorded on your credit file, and can have a negative impact on your credit score if too many searches show up in a six month period.
When you are applying for something, you should always check whether you are going to be subject to a soft or hard credit check. The company should state that clearly, but if in doubt you should always double-check with them first.
A soft credit check happens when you make a search on your own credit file using free services like ClearScore, Credit Karma or Credit Club (linked below), or when a company makes an identity or background check on you. A hard credit check is when you make a formal application for a loan, mortgage, phone contract or join a utility company.
You can’t remove credit checks from your report. You have to wait 12 months for them to disappear. But if your credit score has been negatively impacted by multiple hard checks happening in a six month period, you should start to see your score improve after six months of responsibly paying off that credit (as long as no other hard checks have happened).
How do I check my credit score?
You should be checking your credit score and credit report at least once a year. But if this is the first time you’re checking – do it now so that you can be sure that there isn’t anything bringing your score down.
You may have an error or something still showing that should have disappeared. Maybe an ex-partner with a “poor” rating is still financially linked to you?
We have loads of helpful information on credit scores and how to improve them. But you can also check out some of these greats services that offer free peeks at your credit report without harming your score:
ClearScore (uses Equifax data)*
Credit Club (uses Experian data)
Credit Karma (uses TransUnion data)
*Honesty klaxon! We get a small commission if you sign up to ClearScore using this link.
Making soft credit checks work for you
You can use soft credit checks to work out whether you are likely to pass a hard credit check. If your eligibility looks good, you can decide to take the application to the next step.
But if you fail at the first hurdle it’s best not to go down the road of a hard credit check. You know you’re likely to be declined and then you have a stain on your record for a year! Instead, try elsewhere, make sure it’s just a soft search again and keep shopping around.
What if I am failing all my eligibility checks?
So, it’s great to know that you can check your eligibility and keep an eye on your credit score. But what if it doesn’t make for great reading? At some point you’ll want to take the plunge into a hard credit check when you apply for a loan or a credit card. How can you give yourself the best chance?
If you want to build up your credit score you need to get started with Loqbox. It’s proven to build your credit score with all three CRAs (Experian, Equifax and TransUnion). Here is a great way that Loqbox can empower you to get your credit score where you want it!