What is a credit check?

Lenders and other companies usually complete checks when you apply for credit, or to use their services.

What is a credit check?

Regardless of whether you’re applying for a mortgage, credit card, personal loan, overdraft, car finance,or another type of credit, your chosen lender will usually complete a credit check as part of their decision-making process.

Checks may also routinely completed by utility companies and other service providers, landlords, letting agencies and even some employers.

This usually involves checking your credit report, which will highlight potential risks associated with offering you credit.

At Lloyds Bank, the credit reference agencies we use include TransUnion, Experian and Equifax.

It’s worth knowing that lenders and other service providers may also complete their own scoring when you apply for credit, factoring information from your credit record. They also consider other factors like affordability and any past account history.

More about credit scores

Why do lenders perform credit checks?

Lenders complete credit checks to help them assess the risk of offering credit, and how likely it is to be repaid, based on your past financial history and personal circumstances. Other companies may also complete checks before offering services to you.

Depending on the type of borrowing, the lowest and longest lasting interest rates might be offered to low risk applicants, who’ve shown they can manage credit responsibly.

Your credit score can also influence the amount of credit you’re offered.

What affects your credit score?

What is a hard credit check?

A ‘hard’ credit check is completed when you submit a full application for credit, or to use some services, which will involve a review of your credit report and may impact your credit score.

Hard credit checks are often completed when a company is:

  • Lending to you, e.g. for a mortgage, loan or credit card.
  • Providing a service, e.g. a mobile phone contract, utility supply or rental property.

Applying for new credit or services could affect your credit score in the short term, but by using and managing accounts responsibly, it could help to improve your score over time.

Companies must request your permission before they complete a hard credit check.

What is a soft credit check?

A ‘soft’ credit check is often used to provide insurance or credit quotations, a mortgage agreement in principle, for credit card eligibility, and by price comparison websites.

They’re also used by companies you already have a relationship with, helping them to complete background checks.

In addition, a soft credit check is completed when you check your own credit score and report.

Although they involve a review of your credit report, soft credit searches won’t impact your credit score.

How does a credit check affect your credit score?

The impact on your credit score, depends on the type of check that’s been completed.

A hard credit check will be visible to anyone checking your credit report, and can affect your credit score for at least 12 months, which could impact your short-term ability to secure credit.

A number of hard credit searches in a short period could suggest you’re having financial difficulties, potentially influencing the way you are viewed by lenders and other service providers.

A soft credit check may be visible on your credit report, but won’t affect your credit score, or your ability to get credit in future, so there’s no need to worry about how often they’re completed.

Just bear in mind that soft credit searches aren’t offered on all credit types, so make sure you’re aware what type of checks will be completed before you give consent.

Lenders also check

Details you provide

As part of a credit application you’ll be asked for some personal and financial information, which could include your address, employment status, income and regular expenditure.

Affordability

Lenders might review what you can reasonably afford to repay, based on your income, outgoings and existing borrowing.

Your account history

Lenders usually keep records about accounts you’ve held with them in the past, including information about how well they’ve been managed.

Key points about hard and soft credit checks

Credit checks are completed to assess the risk of lending or doing business with you.

  • Checks are completed by lenders, utility companies and other service providers, letting agencies, landlords and some employers.
  • Things like your borrowing history, court records and even being on the electoral register, can affect your credit score.
  • A hard credit search involves a review or your credit record, which may impact your credit score and eligibility.
  • A soft credit check just provides a view of your credit eligibility, which won’t impact your credit score or ability to secure credit.

Where next?

Know where you stand with Lloyds Bank

Sign up for ‘Your Credit Score’ to see your rating with TransUnion. It’s free to check and won’t hurt your credit score.

More about Your Credit Score