A credit check, or credit search, is a snapshot of your financial behaviour used by credit providers to indicate the “risk” of lending money. There are two different types of credit searches; one that won’t affect your credit rating, and one that may.
In this article, we’ll discuss the difference between hard and soft credit checks, and how to protect your credit file when applying for finance.
What are the two types of credit checks?
1. Hard credit searches
When you apply for credit – such as a mortgage or credit card – the lender will run checks to see how likely you are to meet repayments. If you’ve applied for a new job or want to rent a property, someone might run a credit search to confirm your identity and see how you manage your money. These are called ‘hard’ credit checks, and any conclusion reached as a result of these checks will appear on your credit history.
2. Soft credit searches
To check your credit as it would appear to potential lenders, you can run a ‘soft’ search. A soft search on your credit file can also be carried out by third parties to pre-approve you for credit – such as a mortgage in principle. This isn’t a commitment to lend the desired amount, but it is a good indication that if all your information is correct, you should meet the criteria for applying.
DivideBuy’s Eligibility Checker tool lets our merchant partners offer customers a soft credit check before applying.
What happens in a credit search?
In a credit search, your financial history is thoroughly checked and scored.
A number of factors are considered, including:
– your level of debt
– any late payments
– CCJs, IVAs, and bankruptcies.
This also includes anyone you’re linked to financially (for example, a joint tenancy holder) and whether you’re on the electoral register.
You’re given a score for each section and the sum of all the scores is a three-digit number. This is your credit score or rating.
What is a good credit score?
Different credit referencing agencies use different scores. But on a scale of 0 to 999 for example, a good score would be somewhere between 800 and 950, and a fair to average score would be between 700 and 800.
DivideBuy uses TransUnion as our credit reference agency. You can check your credit score through them for free here.
What effect does a credit search have on my credit file?
Soft credit searches like DivideBuy’s Eligibility Checker don’t affect your credit file, and you can check your credit as often as you like in this way. Checks will be recorded on the file, but are not visible to third parties – so won’t affect the way lenders see you.
One hard credit search isn’t likely to have an impact on your credit file. When several hard searches are carried out in a short period of time, however, your credit score could be affected.
Hard credit searches show up on your credit file, and too many in a short timeframe could indicate that you’re trying to open a few new accounts at the same time. It may also suggest that you’re experiencing financial difficulty or overspending, which equates to “risk” as far as lenders are concerned. As a result, you might notice a temporary drop in your credit score.
How long do credit searches stay on your file?
Soft searches on your credit file don’t leave any kind of mark on your history. Although they are recorded, only you can see them.
Hard credit searches are visible to you and third parties, and most stay on your credit report for just over a year. Some hard searches may stay on your credit file for longer – and searches by debt collection companies are visible for a couple of years. For example, any missed payments can show for up to 6 years.
Most hard credit searches on your credit report won’t affect your credit file after a year, but it’s a good idea to avoid any unnecessary hard checks.
A soft credit search is a free way to find out where you stand financially, highlighting any loans and credit you have as well as your payment history.
DivideBuy’s Eligibility Checker tool is available through all of our merchant partners. To safely check your eligibility for interest free finance, visit our shopping directory now.