A hard credit search is a comprehensive review of your financial past, conducted by a lender or company when you apply for credit, such as a loan, credit card, or mortgage. It’s a deep dive into your borrowing and repayment history, providing a detailed picture of your financial behaviour.
These searches can leave a temporary mark on your credit report and influence your credit score, affecting your ability to secure loans or credit cards.
In this article, we’ll break down the essentials of hard credit searches, explaining how they work, why they matter, and how you can minimise their impact on your financial well-being.
What is a Credit Check?
A credit check, also known as a credit search, is when a company looks at information from your credit report to understand your financial behaviour.
They don’t always need your permission to do this, but they must have a legitimate reason (e.g., you applied for a loan with them).
Companies use the information held by various credit reference agencies to assess your creditworthiness and the level of risk involved in lending to you or providing you with services.
They want to see how you’ve managed credit in the past to gauge how likely you are to repay them.
Companies that may do a credit search on you include:
- Banks and building societies
- Credit card providers
- Utility suppliers (e.g., gas, water, and electricity)
- Letting agencies and landlords
- Mobile phone companies
- Employers (although they won’t see your full report)
It’s important to note that checking your own credit report or credit score won’t affect your score or your likelihood of being accepted for credit – no matter how many times you check them.
There are two types of credit checks: a soft credit check and a hard credit check.
What is a Soft Credit Check?
A soft credit check is an initial look at certain information on your credit report.
Companies perform soft searches to decide how successful your application would be without conducting a full examination of your credit history.
Soft searches aren’t visible to other companies – so they have no impact on your credit score or any future credit applications you might make.
Only you can see them on your report and it doesn’t matter how many there are.
You will find more useful information in our article: What is a soft credit search?
What is a Hard Credit Check?
A hard credit check happens when a company makes a complete search of your credit report.
Each hard check is recorded on your report, so any company searching it will be able to see that you’ve applied for credit.
Too many hard credit checks over a short period can affect your credit score for six months, reducing your ability to get approved for credit in the future.
If you apply for credit, the company you apply to will do a hard check of your credit report to see your suitability. But you can also be subject to a hard check from utility providers and mobile phone companies when applying to use their services.
With a hard credit check, the lender can see your full credit report, including:
- Personal details, like your name and date of birth
- Your current and previous addresses
- If you’re on the electoral roll
- Details of any outstanding credit, including credit cards, loans and any debts you owe utility providers or other companies
- Any late, missed or incomplete repayments from the past six years
- Your current account provider and details of any overdrafts you hold (but not your bank balance)
- If you’re financially linked to anyone – for example, someone you share a bank account or mortgage with
- Public records information for the past six years on bankruptcies, house repossessions, County Court Judgements and individual voluntary arrangements.
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Why Hard Credit Checks Matter
While a single hard credit check has a minor, temporary effect on your score, multiple hard checks within a short timeframe can raise red flags for lenders.
This is because they may interpret multiple applications as a sign of financial difficulty – an indicator that you might be struggling to manage your finances or are desperate for credit.
This situation can happen when you apply for a mortgage and get declined. Then you re-apply with a new lender but get declined again.
This perception of increased risk can lead to several negative consequences:
Loan Application Rejections:
Lenders may be hesitant to approve your application if they see too many recent hard checks, fearing you may be overextending yourself financially.
Higher Interest Rates:
Even if you’re approved, you could be offered less favourable terms, such as higher interest rates, to compensate for the perceived higher risk.
Lower Credit Limit:
Lenders might offer you a lower credit limit on cards or loans, reflecting their concerns about your ability to manage debt.
Minimising the number of hard checks on your credit report is helpful for maintaining a good credit score and improving your chances of getting approved for credit on the best possible terms.
Space out your credit applications to avoid having multiple hard checks appear on your report in a short time frame.
Consider waiting a few months between applications, especially for major credit products like mortgages or loans.
Finding out why you are getting rejected could save you a heap of time.
Get a copy of your credit report and discuss the issues with a mortgage broker. It maybe that you are applying to the wrong type of lender, given your circumstances and credit history.
Managing Hard Credit Checks
You can check your credit report for hard enquiries by obtaining a copy from the three main credit reference agencies in the UK: Experian, Equifax, and TransUnion.
Checking your own report only triggers a soft credit check, so it won’t harm your credit score.
To minimise the impact of hard checks on your credit score, consider these tips:
- Use eligibility checkers: Before applying for credit, use online eligibility checkers offered by many lenders and comparison websites. These tools use soft searches to give you an idea of your approval odds without affecting your score. (A decision in principle would be used for a mortgage)
- Space out applications: Avoid making multiple credit applications in a short period. Aim for no more than two or three applications every few months, as each application triggers a hard check.
- Focus on pre-approved offers: Look for pre-approved credit offers, which are usually based on soft checks and indicate a higher likelihood of approval.
Remember that hard enquiries stay on your credit report for up to two years, although their impact on your credit score usually lessens significantly after 12 months.
Hard or soft: What’s the difference?
A soft credit check is like a quick glance at your credit report, while a hard credit check is a more thorough examination.
Soft checks are sometimes done without your knowledge or consent and don’t affect your credit score. They’re often used by companies to pre-approve you for offers or to verify your identity.
Hard checks, on the other hand, require your permission and can temporarily lower your credit score. They’re typically done when you apply for credit, such as a mortgage, loan or credit card.
Hard credit searches are an inevitable part of the mortgage application process.
While a single hard check has a small impact, multiple enquiries in a short period can raise concerns for lenders, potentially affecting your ability to secure credit or leading to less favourable terms.
In the context of a mortgage, this could mean being rejected by a high street prime lender (who have the best rates) and having to approach a near-prime or sub-prime alternative.
By being mindful of your credit applications, using eligibility checkers, and spacing out your enquiries, you can minimise the impact of hard checks and safeguard your credit score.
Regularly checking your credit report allows you to monitor hard enquiries and ensure the information is accurate.
What is a credit report?
A credit report is a record of an individual’s financial history, including information about loans, payments, and debt over the previous six years. Each of us has our own, unique credit file.
It provides lenders with vital insights into a person’s trustworthiness and reliability when it comes to debt repayment.
If you have never applied for credit then you may have a ‘thin credit file‘, due to the lack of credit information available.
Credit reports are maintained by three major credit bureaus, or Credit Reference Agencies,—Equifax, Experian and TransUnion—and provide comprehensive data about an individual’s history with borrowing money.
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