Hard Credit Checks - what are they and how do they work?

A credit check (also known as a credit search) is when a financial provider, business, or lender reviews your credit report. They might do this to check your financial history and to determine whether you meet the relevant criteria for their products or services.

There are two types of credit check that can be carried out when you apply for finance – hard searches and soft searches. In this guide, we explain what a hard credit check involves and how it could affect your finances.

What is a Hard Credit Check?

A hard credit check involves a full search of your credit record. A record is made of each hard check carried out, which means that other companies that conduct a full search will be able to see that you’ve applied for credit.

Lenders and companies use hard credit checks to see if you are suitable for any financial products you have applied for. The more full credit applications you make, the more hard credit search markers will appear on your record.

Businesses and financial institutions are more likely to conduct a hard credit check when you:

  • Apply for a loan, mortgage, or credit card
  • Apply to a utility company
  • Apply for a new mobile phone contract

What is a Soft Credit Check?

Soft credit checks allow businesses to take an initial look at limited information from your credit file. Some organisations use soft searches to give an indication of how successful a full application would be without conducting a full review of your credit history.

Unlike hard credit searches, soft credit checks do not leave a marker on your credit report. This means that they are not visible to companies viewing your file, and have no impact on your credit score.

Soft credit checks are more likely to happen when you:

  • Search your own credit report
  • Complete an identity check with a company
  • Use services that check your eligibility for financial products

What information is contained in your credit report?

The information in your credit report is sourced from banks, building societies, credit card companies and other financial firms you’ve dealt with in the past.

When companies conduct a hard credit check they will generally be able to see:

  • Your name, date of birth, and address
  • Whether you are on the electoral roll
  • Your total available credit and outstanding debt
  • Financial associations and links with other people through, for example, a joint bank account
  • Details about whether you have been the victim of fraud through Credit Industry Fraud Avoidance System (CIFAS) notifications
  • Details of any late or missed payments on existing or previous credit (over the past six years)
  • Any County Court Judgments (CCJs) made against you during the past six years
  • Details of any insolvency proceedings against you (e.g. bankruptcy) during the past six years
  • Details of hard credit check that other companies have carried out

The following information is not included in your credit report:

  • The amount of money in your current accounts
  • Your salary
  • Your total savings balance
  • Student loan debt figures
  • Your criminal record
  • Your medical history
  • Any history of parking or driving-related fines
  • Details of council tax arrears

What Does a Hard Credit Check Show?

When a lender conducts a full credit search, they will review your financial history to check how you’ve handled your money and available credit in the past. Any overdue payments, insolvency proceedings, or County Court Judgments (CCJs) will appear on your credit report for a number of years, and may affect the decisions of lenders who review your file.

Who Can Access Your Credit Report?

While you can access your own credit report at any time, companies can only do so if they have a legitimate reason. The companies that might look at your credit file include:

  • Banks and building societies when assessing applications for new accounts
  • Mortgage providers
  • Lenders and creditors
  • Potential employers (with your permission unless you are applying for a job in the law and finance industry)
  • Utility companies
  • Mobile phone companies
  • Letting agents
  • Debt collection agencies
  • Government agencies
  • Insurance companies

How long do hard credit checks stay on file?

For most hard searches, a record will remain on your credit report for 12 months. This can be longer for certain checks, for instance, those conducted by debt collection agencies.

Why Do Hard Credit Checks Affect My Credit Score?

A marker is left whenever a company conduct a full search of your credit report. This means that other companies conducting a hard credit check can see that you’ve applied for financial products.

Too many credit applications over a short space of time could suggest to lenders that you are not financially stable. In some cases, lenders may also consider you a higher risk if your application was refused.

Can I Find Out Who Checked My Credit Report?

You can see who has checked your credit report by viewing it for yourself. There are three main credit reference agencies (CRAs) in the UK – Such as Experian, Equifax, and TransUnion. A fee of £2 used to apply when checking your own credit report, but that is no longer the case and you can now view it for free.

Your credit report contains a record of any hard credit checks (that both you and other companies can see) and soft credit checks (that only you can see).

Can I Avoid Hard Credit Checks?

You can minimise the number of hard credit searches on your report by making fewer credit applications. You can improve the chances of those you do make being approved by only applying for credit when you meet the eligibility criteria.

Certain financial companies and credit brokers also allow you to check your eligibility for a loan, for example, without the need to make a full application.

When users make an application to Little Loans, we conduct a soft credit search to check their eligibility and to help match them with the lender from our panel that is most likely to approve their application. This means that no marker is left on file and their credit score won’t be affected unless they choose to make a full application to a direct lender (who will then conduct a hard credit check).

How Can You Reduce the Effect of Hard Credit Checks?

While minimising the number of credit applications you make can help to protect your credit score against the impact of hard searches, you’ll probably still need to apply for credit from time to time.

By only applying for credit you are eligible for and spacing out your applications (some say that you should aim for one application every three months) you can protect your credit score from the effect of too many hard searches.

Reputable brokers like Little Loans can also help you to reduce the effect of hard credit checks. This is because we work with a panel of lenders and use a soft credit search to identify which is most likely to accept your application. You may be able to avoid needing to make multiple applications to get accepted as a result.

Hard Credit Checks – Summary

Hard credit checks are a tool used by financial companies to review your credit history. They may then use this information to decide whether you are eligible for their lending products and to arrive at an ultimate decision regarding your application.

While an occasional hard credit check is unlikely to seriously damage your credit score, too many over a short period of time could. To prevent this, borrowers may wish to avoid applying for multiple financial products at once and use soft searches wherever possible to get an indication of whether they are likely to be accepted for credit.

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