What is a Credit Check?

When you sign up for anything from a broadband or mobile phone contract to a bank account or mortgage, a credit check allows companies to find out more about how you manage your finances before they decide whether to take you on as a customer. Here’s the lowdown on how credit checks work.

Peter Adams, Rhiannon Philps Published on 08 April 2020. Last updated on 26 January 2022.
What is a Credit Check?

A credit check, or credit search, gives a company access to information about you from your credit report to help them understand how well you manage your finances.

Depending on why a company needs to check your credit history, it may conduct a hard or soft credit search. These show different amounts of information and have different effects on your credit score, which we explain below.

What does a credit check show?

When companies conduct a credit check, they look at your credit report. This is a record held by credit reference agencies (CRAs), such as Experian, Equifax and TransUnion, which allows third parties to see key details about you and your financial situation.

The data that a company sees when they perform a credit check will depend on whether it is a hard or soft search.

A soft search will only show limited information, to allow a company to verify your identity and give a broad overview of your financial history, while a hard search will give providers more insight into your financial situation.

Some of the information a credit check can show includes:

  • Your name and date of birth.
  • Your address history.
  • Whether you’re registered on the electoral roll.
  • Any current account overdrafts you have.
  • Any hard credit checks that have been performed over the past 12 months, e.g. if you applied for credit.
  • What credit you currently access, such as loans, credit cards or mortgages. This will include details on credit limits and the amount you still owe.
  • Any credit that you have paid off within the past six years.
  • Any late or missed payments, and if you have defaulted on any credit agreement.
  • Any debt relief orders (DROs), individual voluntary arrangements (IVAs), county court judgments (CCJs) or ‘decrees’ (Scotland only), bankruptcies, or home repossessions.
  • If you are linked financially to other individuals, through a joint account or loan, for example.
  • If you have been a victim of fraud or committed fraud yourself.

Most of your financial information will stay on your credit file for at least six years.

Bear in mind that, whatever kind of credit check they run, companies won’t be able to view your bank statements or how much you earn.

A credit check will also reveal your credit score – a number that helps to indicate your creditworthiness to lenders. Each CRA has a different scoring system.

» MORE: What is a credit score?

Who can perform a credit check on me?

A variety of third parties can run a credit check on you, but they must have a valid reason to do so. It’s safe to assume that any application for credit, including loans, mortgages, credit cards, and car finance, will involve a credit check.

However, it’s not just when you borrow money that a credit check may be performed. For example, banks and building societies may also conduct a credit check when you apply to open an account with them.

Examples of other organisations that might run a credit check on you include:

  • insurance companies
  • utility companies and other service providers (gas, electricity, water, broadband)
  • mobile phone companies (if you’re on a contract)
  • landlords and letting agents
  • employers

Some of the above will only conduct a soft credit search, so they won’t be able to see all the information on your credit file.

For example, employers and landlords will only be able to see publicly available information, such as your name, address, and if you have any CCJs.

You should always be told if a company is going to run a credit check and some groups, such as landlords and letting agents, need to get your permission first.

If you apply for a product in a joint name, on a bank account or mortgage, for example, a credit check will be performed on both parties.

What is a soft credit check?

A soft credit check is a basic look at your credit history, which only allows a company to view a limited amount of information. They may be run as part of a general background check, to help a company confirm your identity, for example.

These may sometimes be called quotation searches as providers can also use them to see if you qualify for credit.

Soft credit checks don’t leave a mark on your credit history.

Anyone running a soft search on your credit file will be able to see:

  • your name
  • your date of birth
  • your current address and address history
  • whether you’re on the electoral roll
  • a top-level view of your financial history

If you check your own credit history, this will appear as a soft search. However, you will be able to see your full credit report with more detailed information.

Soft credit checks are likely to happen when:

  • You search your own credit report.
  • A company uses your credit report to verify your identity.
  • You check your eligibility for credit with a lender.
  • You take out an insurance policy.
  • You rent a new property.
  • You use a buy now, pay later (BNPL) service. Bear in mind that some BNPL providers will perform a hard credit check, so make sure you confirm what kind of check will be run before applying.

While you will be able to see soft searches on your credit history, any third parties that run a credit check won’t be able to see them.

As a result, soft credit checks won’t affect your credit score and won’t affect any credit applications you may make in the future.

What is a hard credit check?

A hard credit check is a full search of your credit history.

Whenever you apply for any form of credit, including loans, credit cards, and mortgages, the provider will need to perform a hard credit check.

Through this check, they will be able to see how you have handled credit in the past and if you have made your repayments on time.

Lenders will use this information to work out the level of risk you present and how likely you are to repay the loan if they approved your application. Credit checks also help lenders to work out what interest rate to charge.

Unlike a soft search, a hard credit check will leave a mark on your credit file. This will usually stay on your credit file for at least 12 months and it will be visible to any company that subsequently runs a credit check.

Hard credit checks are likely to take place when:

  • You apply for any form of credit, including mortgages, loans, credit cards or overdraft facilities.
  • You take out car finance or finance for another item.
  • You sign up with a new utility provider. Bear in mind that this depends on how you choose to pay and some providers may only run a soft search.
  • You sign up for a pay-monthly mobile phone contract.
  • You take out an insurance policy and pay for it monthly.

Too many hard credit checks over a short period of time will affect your credit score and could indicate that you are struggling financially. As a result, you should make sure you space out any applications for credit.

Before applying for a loan or another form of credit, many providers allow you to check your eligibility. Doing this won’t affect your credit score as providers will only run a soft credit search, and it can tell you how likely you are to be accepted for the credit you want.

Checking your eligibility can help to minimise the chances of your application being rejected, and so reduces the number of hard credit checks on your credit file.

Can I check my own credit score?

Yes, you can check your credit history for free, without affecting your score.

All three main credit reference agencies allow you to view your credit history. It’s worth looking at your file with all three agencies as there may be some variations between them, and different providers will use different agencies for their checks.

It’s a good idea to check your credit score on a regular basis, especially if you plan to apply for credit in the near future. If necessary, you can then work to improve your credit score to increase your chances of getting accepted for credit at a competitive interest rate.

Checking your credit history also means you can spot and correct any mistakes that may be on file.

» MORE: How to check your credit score

About the authors:

Peter reports on a number of areas in the personal finance sector, with a particular interest in supporting businesses and individuals in the UK services industry. Read more

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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