Credit Check Explained

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By Sarah Watts
Updated on Tuesday 28 November 2023

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Just about everyone has heard of a credit check but not everyone fully understands exactly what one entails, the different types of checks that can be made, why they’re carried out, or how certain checks can affect your credit rating.

A healthy credit score is crucial for so many in this buy-now-pay-later-crazed 21st century and without a good credit score, you will struggle to get any type of loan or if you do, you will usually have to pay a much higher interest rate.

You may also struggle to get an overdraft, switch energy providers, take out a new phone contract or in certain professions, get a job.

Read on to find out everything you need to know about credit checks and the type of checks that can have an impact on your credit report.

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What do you mean by a credit check?

Credit check meaning: When you apply for a loan, credit card, bank account, new utility provider, rental property, mobile phone contract or even certain jobs, a person or a company will check your credit report to either verify your creditworthiness and/or your identity and address.

What exactly is a credit check?

A credit check (also known as a credit search) is carried out, predominantly by financial institutions when you apply for credit, to examine your historic financial standing and conduct.

There are two types of checks - one is known as a ‘soft check’ and the other a ‘hard check’ (learn more below). Hard credit checks cannot and should not be done without your prior consent as they can have an impact on your credit rating.

Companies or individuals who are entitled to make checks include:

  • Banks and building societies
  • Credit card providers
  • Insurance companies
  • Utility companies
  • Debt collection agencies
  • Government agencies
  • Mobile phone networks
  • Landlords or their letting agents
  • Employers (soft credit inquiry only)

What does a credit check show?

What is revealed by a credit check depends on the type of check that is being made.

If you check your own credit file then you are able to see all soft and hard checks that have been made on your file; soft searches cannot be seen by any other people or companies other than you.

Apart from other soft searches, third parties can access all historical financial information held on your credit file and can check your identity and proof of address, but how much information is disclosed to them depends on whether they are conducting a soft or hard check.

What is a soft credit check?

A soft check can be you personally checking your own credit report or when a lender or other similarly entitled business wants to gain a brief overview of your financial standing and verify your identity and address.

Soft searches are typically carried out by lenders and insurers (and insurance comparison sites) as a preliminary measure simply to check whether they will be willing to offer you one of their financial products or services.

To clarify, a soft credit search will usually reveal any of the following:

  • Current accounts
  • Personal loans
  • Credit cards
  • Mortgage(s)
  • Payment history
  • Identity
  • Address
  • Any other relevant public records

What is a hard credit check?

A hard credit check is when a person or company makes a thorough and comprehensive check of your credit history and will look more intensely at your historical financial conduct.

If you have a good credit score, but historic data that shows you have previously defaulted on repayments, then a hard credit inquiry will flag this up and could result in an application you have made being declined.

Hard checks, unlike soft checks, will be recorded on your credit file and this means that anyone who does a hard search of your credit file in the future will be able to see previous hard checks. If you have too many hard checks (especially in quick succession) or declined applications for loans showing on your credit report, then this will affect your ability to apply for credit.

All of the information revealed by a soft check will also be revealed by a hard check, but the difference is a soft check is not recorded on your credit files (and does not impact your score), but hard checks are.

Hard checks are usually made when you:

  • Apply for a mortgage, loan or credit card
  • Switch utility providers
  • Apply for a mobile phone contract

When applying for any sort of credit at all online, do not readily and easily give consent to hard checks of your credit files - try to use companies who say that only a soft check will be made to assess your viability for a loan or other financial products.

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

Yes, if you are a member of the public who did not seek prior written permission. No member of the public, not even close relatives, should be able to view your credit files and should not seek to do so without your prior written consent.

But no, it is not illegal to run a credit reference check without permission if you are a company with a legitimate reason for doing so and you are only making a soft check.

However, even a company with a legitimate reason to run a credit check needs your permission to run a hard check as a this will be recorded on your credit file and can damage your rating, so you should be told about it beforehand.

A full list of all of the types of businesses who are entitled to run credit checks are listed under ‘What is a credit check?’ above.

What information do you need to provide for a credit check UK?

The basic information needed by a company to make a credit check in the UK includes your:

  • Full name
  • Date of birth
  • Address
  • Express permission (hard checks only)

If you are checking your own credit report, a credit reference agency will want to ensure that it is really you checking your credit report and not a member of the general public.  So in addition to the above information, you may be required to confirm personal information that only you would easily know like who you bank with, any loans or credit cards you have, any other names you have used or been known by in the last six years and any previous addresses you have lived at in the last six years.

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How many credit checks is too many?

According to Experian, you should ideally avoid having more than one hard credit search done every three months.

After you have made an application that triggered a hard check being made, regardless of whether your application was successful, that hard check will be recorded on your credit file and will therefore be visible to other companies. After this happens, avoid applying for anything that triggers a hard check for three months.

If you make several applications (especially for loans or credit) within quick succession, this can harm your credit score and will make it appear to other lenders that you are perhaps in financial difficulty and desperate for money.

Besides too many hard credit checks damaging your creditworthiness, missed payments or incorrect addresses linked to your name can hurt your credit rating, too.

For more information on what can affect your credit score, check out our guide: What affects your credit score?

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

Most hard searches will stay on your credit file for a period of 12 months but debt collection searches stay on for two years.

If you check your credit score, will this affect your credit rating?

No, checking your credit score will not affect your credit rating as doing so falls into the ‘soft search’ category. So other companies carrying out searches will not see that you have checked your own credit file either.

We recommend checking your credit report with all four main credit reference agencies (CRAs) for free, instead of applying to each agency individually which is extremely time-consuming and unnecessary.

It’s important you check credit score ratings with all four agencies as different institutions use different agencies and a credit report with one agency could be tickety boo, whereas with another agency, it might not be very good at all. One site you can use to check what information is held on you by all CRAS is Checkmyfile.

It’s impossible to always know which credit reference agency a company will use so making sure your credit report is in order with Equifax, Experian and TransUnion is essential financial maintenance work.

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