What Is A Credit Check?
Credit checks are commonplace now and they involve a simple or detailed check being carried out in regard to a person’s credit. Credit checks, sometimes known as credit searches, produce a credit report that details your current financial situation and suitability for different lines of credit. Lenders must carry out credit checks, however each will have their own criteria as to whether you can apply for credit or not. Not all lenders solely use credit checks and many use affordability checks alongside credit checks to help make a final decision.
When applying for a new line of credit, a credit check will likely be carried out and your consent is typically required when doing so. However, consent isn’t always needed to run a credit check and many debt collection agencies or insurance companies can run them without your consent; however, they must have a legitimate reason as to why they need to run one. Both soft and hard credit checks can be run and soft credit checks leave no mark on your overall score, however too many hard searches can have a negative impact.
Soft Credit Checks Explained
Soft checks are regularly run by companies and it is one of the most commonly run checks. The reason soft credit checks are run is to help give companies a limited overview of your finances to help decide whether a particular line of credit is suitable for you or not or whether you might be eligible for a particular type of finance. This check is then matched with a lender’s criteria to help you decide whether to apply or not.
Soft credit checks aren’t visible to others on your credit report and you could have lots run and it wouldn’t impact your overall score or the decision a finance company makes about you. With soft checks having no impact on your credit rating and most of these are run when using comparison websites for things such as energy or insurance or when using eligibility checks on credit card or car finance websites.
Hard Credit Checks Explained
Whilst most soft credit checks are run when checking eligibility, hard credit checks are run when applying for actual finance. Hard credit checks are carried out when you apply for credit with a company and it allows them to carry out a complete search on your history and view your full credit report. These types of credit checks are carried out when applying for things such as loans, mortgages and car finance.
It’s important to remember when you apply for finance a hard credit check is carried out and these can have a negative impact when you fail a check or when multiple are carried out. Should you happen to fail a hard credit check with a company then it’s advised that you don’t apply again for at least 6 months to help prevent any negative impact on your overall report. Whilst most hard credit checks are carried out when applying for finance they can also be carried out for utilities and mobile networks.
Carrying Out Soft and Hard Credit Checks
Most soft credit checks are carried out when your or a company is interested in applying for a particular line of credit to see how eligible they are. In addition to this, hard credit checks are carried out when you actually apply for that credit. Soft credit searches leave no impact on your report, whereas hard credit searches will have an impact.
When Are Soft Credit Checks Carried Out?
- If you carry out a credit check on yourself
- When you check your eligibility for types of credit
- Using comparison sites when comparing utilities or finance
When Are Hard Credit Checks Carried Out?
- If you apply for credit such as mortgages, loans or credit cards
- When you apply to a new utility company or when you change provider
- If you apply for finance for things such as cars or mobiles
Apply For Credit – What To Consider
Applying for credit is never something that should be rushed into and you need to consider the impact it will have on yourself in both the short term and long term. Whilst lenders will do their own checks to see whether you are suitable for credit, you also need to consider whether it’s affordable for you. All parties need to act responsibly when applying for credit or when credit is being granted.