Credit checks are used every time we apply for a loan, mortgage or credit card, as well as other financial products. They may also be carried out before entering into contracts e.g. by a landlord on a tenant or a mobile phone provider on a potential customer. The purpose of the check is to establish whether the person making the application is a credit risk. A credit score check can be soft or hard – not all credit checks will show up in an individual credit history. Consent is almost always required before a credit check is carried out.
What can you see on a credit check?
One of the most common questions consumers have is about borrowing is: when lenders take this kind of action what do they check on a credit check?
A soft credit check
Soft credit checks don’t show up in credit history. They are often used as a background check and will examine certain information in an individual’s credit file but not all of it.
A hard credit check
Hard credit checks will show up in credit history. This is a full examination of an individual’s financial past and will be used to establish:
- How much credit someone already has and how much of it is currently being used – anything around 50% or less is considered acceptable
- Debt to income ratio i.e. how much of monthly income is used for debt repayment
- Payment history e.g. missed payments
- Search history – how many other credit applications have been made recently
What is a credit check based on?
Credit checks bring together individual financial history to form an overall picture of borrowing habits and financial management. They can include some or all of the following:
- Name and date of birth
- Loans, credit cards and other borrowing
- Addresses and former addresses (based on the Electoral Roll)
- Rolling contracts, e.g. for a mobile phone or with an energy company
- Rent payments (if you’re part of the Rental Exchange initiative your rental history is sent to Experian)
- Current account and overdraft balances
- Joint accounts with others
- Previous searches made against your credit file
- Any history with bad debts e.g. CCJs
Can I get a loan without a credit check?
It depends on the lender. If you’re applying for short-term borrowing, such as payday loans, a full credit check may not be required. Instead, the lender may simply opt for a soft credit check, as well as evidence of income. However, for most lending, a hard credit check is part of the process. If you don’t know what your credit history looks like – or you know it needs improving – there are steps you can take to correct this.
A note on credit scores
All the main credit reference agencies collate their own credit scores. Your score will be different with each agency because they use different scales – so, your Experian credit score won’t be the same as your Equifax credit score. When it comes to lenders and what do they check on a credit check, these credit scores don’t tend to be relevant. Lenders will have their own scoring system internally and won’t use the score provided by the credit reference agency, just the information in your credit file.
How can I check my credit score for free?
All of these agencies allow you to check your credit score for free at least once. You may be able to do so as part of a month free trial or as a one off. After that, you may be charged a fee. However, you can also – at any time – request a copy of your statutory credit report from any of the UK credit reference agencies. This costs nothing and is a full summary of your credit history as a lender will see it.
If you prefer to access and manage your credit history via device, apps like ClearScore (which uses data from Equifax) provide permanent free access to your credit report and score.
Improving your credit report
If you’re concerned about what UK lenders see when they access your credit report there are steps that you can take to improve this.
- Rebalance your debt to income ratio by paying off some debt
- Make sure you’re on the Electoral Roll
- Regularly check your credit report for mistakes or evidence of fraud
- Disconnect your credit report from former partners or others you previously shared bank accounts or credit accounts with (e.g. a shared gas bill from an old shared house or a joint account with an ex partner)
- Stop making applications for credit so that your report doesn’t show a large number of searches in recent months
- Stick to your existing debt repayment schedule, don’t miss payments
We all have a credit score and maintaining it is essential. Take the time to check yours regularly and make improvements where you can. You’ll have many more financial options if you do.