Credit checks are an important part of credit applications and managing our finances. It’s part of how lenders can be sure applicants will pay back their loans.
Learning how your credit report works can be a really useful tool – so, how do lenders use them and how can they affect your credit score?
What is a credit check?
A credit check happens when lenders view your credit report to determine whether they’re happy to lend you money. Your credit report details your history of how you manage and repay debt.
Various types of credit lenders and companies conduct credit checks to examine how risky it would be to lend to you. It applies anywhere you apply for credit for any purpose – from home improvements to mobile phone contracts.
Credit checks can come in two forms – ‘soft’ and ‘hard’. Knowing the difference can be very useful, as both are used for various purposes.
What's in your credit report?
- Current and previous addresses - This can include any mail posted to addresses at your request. Any employment details (except for salary) you’ve given to creditors will also be on your report.
- Applications for loans and credit - Even if you decide not to take the service, all recent applications will stay on your credit report for 24 months – though they’ll only affect your credit score for one year.
- Unpaid debt and public records - Unpaid debt is held on your report, as well as legal or public proceedings such as bankruptcy orders, repossessions, or County Court Judgements. Criminal records are not included.
- List of credit accounts - Including bank and credit cards, unpaid loan agreements, utility bills, mobile phone contracts, online banking financing plans, payday loans, and financial links with other people such as joint accounts.
- Repayment habits - How well you keep up with repaying debt. This can reflect positively, or negatively if you struggle to repay on time.
- Fraud - If you’ve been involved with fraud or been a victim of fraud.
How is a credit check done?
Lenders want to examine your credit history to assess if you’re a reliable borrower for credit. When you apply, they look at your credit report – this is a credit check, or credit search.
The check shows them your past history and credit. It determines whether they consider you a safe bet, to lend you the money towards a new car, or the mortgage on that house you want to buy. The results of the credit check (your financial data) inform them how much to lend and what rates they can offer – if they’re willing to lend to you at all.
As you engage with credit accounts, lenders and creditors pass on your financial data to credit reference agencies (CRA), who collect it to create your credit report and score. That way, other lenders can check it to verify your reliability when you apply for credit. Credit reference agencies (sometimes known as credit bureaus) can also help protect against fraud.
Who else can perform a credit check?
It’s not only mortgage, loan and credit lenders who can perform a credit check – utilities, mobile phone companies and even landlords and letting agents can check the status of your credit score.
In some cases, employers can check your credit report if you’re applying for a role in finance or law, or if you will be working with money. They’ll only see public record information, like:
- Whether you’re on the electoral register
- Any record of unpaid debt
- County Court Judgements (or if you’re Scottish, Decrees)
Lenders and companies won’t be able to see if an employer has checked your credit report, so it won’t affect your credit score. This is known as a soft check. A hard credit check is only for credit applications.
Can I see my credit report?
Yes, you can see your own credit report. Every CRA must give you a free copy of your credit report. Find yours online, or write a written request to:
Looking up your credit score is a lot less daunting than it seems. Find out more about checking your credit history.
What is a soft credit check?
A soft credit check is when a lender, or employer, takes an initial look at your credit report. While you can see records of soft checks, they will not be visible to other lenders, or affect your credit score.
Soft checks are used to determine your eligibility for particular products or credit, while also confirming anything you may have supplied in your application.
When you look at your own credit report or score, this appears as a soft check as well. There’s no limit to how many soft checks you can take or how close they are together – so you shouldn’t worry about that.
Find out more information about the difference between soft checks and hard checks.
How long does a credit check take?
How long a credit check takes to report back can vary depending on the reason or application. While some soft checks can take minutes or hours, other checks can take up to a week.
Credit reports are often updated once lenders offer new data to CRAs. This can happen approximately once a month or every 45 days, though it depends on the lender. So, if you decide to make a soft check to see how your credit card balance changes your credit score, you might not see the difference right away.
How many credit checks is too many?
While it’s difficult to put into strict numbers, it’s best not to apply for too many hard checks at once, as this can reflect badly on your credit score.
A hard search will leave a footprint on your credit report. If your credit application is rejected and you continue to apply for multiple others, future lenders may be hesitant to trust you when you need it most.
Hard checks can stay on your credit report for up to two years, but they become less damaging to your credit score over time. So, to avoid multiple applications at once, only apply for what you need.
It’s a good idea to keep track of your credit score to better understand when to make certain checks. Plus, there are plenty of steps to improve your score too.
Keep on top of your credit report and discover more advice on how to manage your credit rating with Norton Finance Know How.