Did you know that around 10 million people in the UK have a mistake on their credit report as per an article published by The Mirror in 2018? A mistake could create difficulties when they apply for credit, yet a lot of people don’t check their credit files.
Whenever you want to borrow money from an FCA regulated lender in the UK, a credit check will be completed. That’s why it’s worth making sure it’s accurate.
But what is a credit check and why is it done? To find the answer to these questions and more, read on. We’ll tell you everything you need to know about a credit check.
Table of Contents
What’s a credit check?
A credit check is when a company looks at your credit history. They do it to help them decide if they want to do business with you. It shows them what your financial situation is and how well you’ve managed your money in the past. It can also be used to verify who you are.
Companies will go to a credit reference agency (CRA) to do a credit check on you. They’ll look at your credit report where information about you and your borrowings will be recorded. The three main CRAs in the UK are:
This is also where you need to go if you want to check your own credit file. It’s where you need to look to make sure that what’s been recorded about you is correct.
Why is a credit check needed?
There are three main reasons why a credit check is needed.
- Credit checks provide lenders with information about a borrower’s financial history. This information helps them to determine whether a borrower is likely to repay a loan. They want to know if they’re taking a risk lending money to someone who may not be able to pay it back.
- Credit checks also help to prevent fraud and identity theft. By checking a borrower’s credit report, lenders can confirm that the borrower is who they say they are.
- In the UK, the Financial Conduct Authority (FCA) has guidelines that all lenders must follow. And all reputable lenders are registered with the FCA. Their guidelines include carrying out a credit check when someone applies for a loan. This is to make sure the borrower can afford to repay the debt they’re applying for.
How long does a credit check take?
A credit check can be done quite quickly, with information being provided to the lender the same day. But it depends on what sort of credit check is being done and what the lender is checking for. If the company is only looking to verify you, they can often give you confirmation within minutes.
If you’re waiting for a response from a lender you’ve applied with, then the outcome will depend on the lender. Some will be able to give you an answer within an hour while others may take a couple of days. It depends on the lender’s internal checking process.
What information does a credit check show?
There’s quite a lot of information recorded on your credit file. When a credit check is carried out, the lender may want to look at some or all of the following information.
1. Your personal information
This would include:
- Your name
- Your date of birth
- Your current and previous addresses
2. Whether you’re on the electoral roll
Your credit report will confirm whether you’re registered to vote. It helps if you are.
3. A list of all your credit accounts
This includes every type of credit account you have. It can be anything from your bank account to loans, mortgages or credit cards. Your credit report will show all the payments you make to these credit accounts too. And it’ll show if they’re paid late or on time.
4. Public information
Public information is items that are reported on the public record. For example, these would include County Court Judgements (CCJs), repossessions and bankruptcies.
5. Details of people who you’re linked to financially
If you’ve taken out any joint borrowings or bank accounts with someone, they’ll be linked to you financially and will show up on your credit report. It means that lenders may look at their credit report too when deciding whether to lend to you.
Types of credit checks
There are two types of credit checks:
What is a soft credit check?
A soft search of your credit file isn’t a full examination of your credit history. It’s just an initial check. Companies do a soft credit check to take an initial look at your credit report. They do this to find out if you’re eligible to apply for a loan or other type of borrowing with them. And it won’t leave a mark on your credit score.
What is a hard credit check?
A hard credit check is when a company looks at more detailed information on your credit file. This would include your personal details, your credit history and any existing debts you have. The information they gather will help them make their decision about your application.
A hard check will have a temporary impact on your credit score, but it won’t stay on there for more than 12 months.
That’s why it’s worth checking your credit file first to see how likely it is that your application will be approved. Don’t forget, it’s not just loan companies that might run a credit check on you, other businesses might too. When you take out a new mobile phone contract for example, they’ll run a credit check.
Does a credit check affect my credit score?
It depends on whether it’s a soft or a hard credit check. The table below shows which credit check will affect your credit score.
| Type of credit check | Does it impact your credit score Yes/No |
| Soft credit check | No |
| Hard credit check | Yes |
As seen above, soft credit checks don’t impact your credit score. They don’t leave a mark on your credit file for other lenders to see. Only you can see that a soft search has been done on you.
Hard credit checks will leave a mark on your credit file, and it’ll affect your credit score. Even if you’re not approved, the mark will still be there for other lenders to see.
The hard credit check will remain on your credit report for up to 12 months. That’s why it’s important that you don’t make too many applications over a short space of time. A lot of loan applications can make you look desperate for money.
Who can run a credit check on me?
A person or company that has a legitimate business need for your credit history can access your report. But only lenders regulated by the FCA will run a credit check on you. The table below shows who might want to look at your credit report and why.
| Who might look at your credit report | Why they’d look at your credit report |
| Banks | When you open a new bank account, they’ll verify you and check your credit history. |
| Mortgage, credit card and loan providers | When you apply for any form of lending, the provider will want to verify you and check your credit history. It’ll help them decide if they’re going lend to you and what interest rate they’ll offer. |
| Mobile phone and utility companies | They’ll look at your credit report to verify you. They may want to see how you’ve managed previous credit before setting up an account with you. |
| Debt collection agencies | Once a debt is passed to them, they have the same right to look at your credit report that the original lender had. The reason they’d look at your credit report would be to help them decide how to collect your outstanding debt. |
| Insurance companies | House or car insurance companies may use your credit report to verify you. |
| Potential employers | Employers may want to check your credit history depending on the field of work you’re entering. |
| Landlords and letting agencies | They would look at your credit report to verify you and to see how likely it is that you’ll pay the rent on time. Not all landlords do this so check with them. |
How can I find out what lenders see from a credit check?
It’s quite easy to find out what information lenders can see when they perform a credit check. They’ll see what’s held on your credit file, which is recorded with the three CRAs mentioned above. They’re Experian, Equifax, and TransUnion.
You can see that information too, just by getting a full credit report from the CRAs. It’s how you can do a credit check on yourself. You’re entitled to one full credit report for free every 12 months from them. If you want to see what’s on your credit file more often than this, then you’ll have to pay a fee.
There are credit monitoring services in the UK who’ll give you information on your credit report for free. These services include:
These credit monitoring services will give you your credit score for free, but you won’t get a full report. As with the CRAs you’ll have to pay to get a full credit report.
Can I fail a credit check?
Yes, you can fail a credit check. There are some common reasons why your credit check might fail including:
- You’ve missed or made late payments to your debts.
- You’ve maxed out your credit cards to their limit and have no spare credit.
- You’ve made a lot of applications for credit recently.
- You’ve got defaults, bankruptcies, or County Court Judgements on your credit file.
- You’re linked to someone with a poor credit rating.
- There’s an error on your credit file.
If you do fail a credit check, don’t worry. There are ways to improve your chances of being approved for credit in the future. We’ve got some steps you can take next.
How can I improve my credit rating?
If you’re worried about your credit rating, there are a few things you can do to improve it.
- Make sure that you keep up with your repayments.
- Try to pay down your debt and keep it under 30% of your credit limit.
- If you haven’t got a credit history, a credit builder credit card could help.
- Register on the electoral roll.
- Make sure there are no errors on your credit report. Having the wrong address could affect your application.
By following the tips above, you can start to improve your score and get on the path to better credit.
Can I get loans without a credit check?
Yes, you may be able to find a lender who can lend you a loan without running a hard credit check. But all FCA authorised lenders will perform a full credit check on you. It’s a required part of the FCA guides on lending.
If you do find a company who’s willing to lend to you without doing a hard credit check, make sure you read their terms. These loans tend to come with high interest rates and fees.
You’re better off doing what you can to improve your credit score before applying for a loan. You can reach out to turn2us to gain support or advice in case of financial difficulties.
Final words
Credit checks are an important part of the lending process. They help lenders decide whether you can afford the loan you’re applying for. By understanding how credit checks work, you can be better prepared when you apply for any type of loan.
FAQs – Credit Checks
What information is needed for a credit check?
To get a credit check done you’ll need to provide the following information.
1. Your full name
2. Any other names you’ve used or been known by
3. Your full address including postcode
4. Any other addresses you have lived at in the last six years
5. Your date of birth
Can I get a hard credit check removed?
No, you can’t get a hard credit check removed from your credit file. It might stay on there for up to 12 months. But if there’s a hard check on there that you don’t recognise, get in touch with the CRA straight away. It may be a sign of fraud or identity theft.
Will checking my credit file myself affect my credit score?
No, it won’t. You can check your credit file as many times as you want, and it won’t affect your credit score. Lenders won’t be able to see that you’ve checked it either. This is because when you check your own score it’s a soft check so only you can see it.
Disclaimer: We are not providing financial advice. These are just tips for informational purposes. Also, we are not affiliated to any of the external parties linked here, they are provided for reference only.