When you apply for any form of credit, the lender will access your credit file from one of the main credit reference agencies to determine whether or not to enter into a credit agreement with you. This is known as a credit check.
Certain actions trigger a hard credit check, while others only constitute a soft credit check. It’s important to know how credit checks affect you and which actions are likely to trigger which type, especially if you’re planning to apply for credit in the near future.
What is a credit check?
Generally, a credit check (also called a credit search or credit inquiry) is a check of your credit report used to gain a better picture of your past financial history. It’s designed to help lenders, mobile phone companies, and other service providers see whether you have any existing debts and how well you’ve managed money in the past. This information is then used to determine how likely you are to handle another credit agreement.
By requesting a credit check, lenders can see some of the companies you have contracts with and how you’ve handled your payments with them. It will also show any financial links you have with people, such as a joint credit agreement with a partner or a public record, including court judgments (e.g. County Court Judgments) and insolvencies (e.g. Individual Voluntary Agreements).
It’s important to note that lenders don’t need your consent to carry out a credit check, but they must have a legitimate reason to do so.
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What is a soft credit check?
A soft credit check is a basic overview of your credit report. It exposes a lender to some information about your financial history to help them understand your credit eligibility, but not all your credit report information.
A soft credit check won’t leave a trace on your credit record, meaning it won’t impact your credit score in any way or your ability to obtain further credit. It will remain on your credit history for 12 months, but the only person who will be able to see any evidence of it is you.
When you check your own credit report – which records as a soft credit check – you can see which companies have also carried soft credit searches on you. This can also be a good way of identifying early signs of identity fraud as it can alert you to anyone trying to take out credit in your name.
A soft credit check can be used by a company that wants to carry out insurance or credit quotations or a company you have an existing relationship with if they want to complete background checks on you (e.g. to find out if you have any County Court Judgements).
What is a hard credit check?
A hard credit search involves a detailed overview of your credit report. It gives a lender an in-depth look into your financial history over the past six years.
A hard credit check will leave a mark on your credit record and other lenders accessing your credit report will be able to see how many times you’ve applied for credit. It will remain visible on your credit report for up to two years, affecting your ability to secure credit during this time.
Every time you apply for credit, it will trigger a hard credit check. Some lenders will carry out soft credit checks for any preliminary checks, but in order to make a final decision, a hard credit check is required.
A hard credit check can be used by a company to determine whether or not to give you a specific credit product, such as a mortgage, loan, car finance agreement, credit card, or mobile phone contract.
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Soft credit check vs hard credit check
If you’re considering applying for credit, it’s important that you know the difference between a soft credit check and a hard credit check.
We’ve outlined some of the key differences below:
| Soft credit check | Hard credit check |
| Has no impact on your credit score | Damages your credit score |
| Primarily used for background checks | Used to assess eligibility for financial products |
| Shows basic financial and personal details | Shows the full picture of your financial history |
| Only visible to you | Visible to all companies checking your credit report |
| Doesn’t always require your permission | Requires your permission |
| Carried out by utility companies and price comparison websites | Carried out by loan and mortgage providers (e.g. banks) |
Do credit checks stay on your credit file and affect your credit score?
As previously mentioned, soft credit checks stay on your credit file for 12 months but only you can see them.
In contrast, hard credit inquiries stay on your credit file for up to two years and are visible to anyone who views your credit report.
Because a hard credit check indicates that you’ve applied for credit, making too many credit applications in a short period suggests you’re in financial difficulty. Lenders need to know this information to determine your creditworthiness and how much credit they are willing to lend to you.
However, because you’re not actually granted a credit product when a soft credit check occurs, there’s no need for it to be recorded on your credit file or for lenders to know it even happened. It also won’t impact your credit score or any future credit applications.
It’s important to note that while a hard credit check can damage your credit score and make it hard to obtain new credit, managing accounts responsibily and maintaining a positive borrowing history can show lenders that you’re a trustworthy borrower and your credit score can increase as a result.
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Who carries out credit checks?
Companies only access your credit report and conduct credit checks when they need to.
Here are some examples of the types of organisations that might need to access your credit file and why:
Banks
Banks check your credit report when you apply for a bank account or loan. They do this to ensure you’re a reliable borrower and are likely to make your repayments in full and on time.
The level of check depends on the action you are taking. For example, if you are applying for a loan or mortgage, a hard credit check will be performed. If you apply for a basic bank account, however, only a soft credit check will likely be performed.
Lenders
Lenders perform a hard credit check when you apply for a credit card or a loan to see how well you’ve managed credit agreements in the past, the maximum amount you can borrow, and the best interest rate you’re eligible for. This helps them seperate high and low risk applicants.
They will also check other details about you, such as your address, employment status, and monthly income and outgoings.
Mortgage providers
As well as the personal and financial information on your mortgage application, mortgage providers will access your credit file to get a full picture of your financial history.
They typically perform a soft credit check when assessing you for a mortgage in principle and a hard credit check before making a final offer. This helps them determine whether you’re a reliable borrower and, as a result, foresee the likelihood of you defaulting on your repayments.
Employers
It can be daunting to find out that employers check your credit file, but it’s important to note that this only happens in rare circumstances.
In fact, it usually only happens if you’re applying for a role in the financial services, accounting, or law industries and you’re required to handle other people’s money or have a high level of financial responsibility.
Landlords
Though not always the case, some landlords will perform a soft search when you submit an application to rent a property.
This is simply to help them confirm your identity and make them aware of any court orders or defaults that might make it difficult for you to afford your rent payments.
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Conclusion
Lenders complete credit checks whenever they have a valid reason to access the information on your credit report to ensure you’re capable of managing accounts responsibly. A credit check can be soft or hard depending on the level of information required.
The impact of a soft and hard credit hard can vary greatly so it’s important to familiarise yourself with what kinds of actions are likely to trigger each.
Put simply, a soft credit check stays on your credit file for 12 months but is only viewed by you while a hard credit check stays on your credit file for up to two years and is visible to anyone accessing your credit record.
