What Are Credit Checks? Hard Versus Soft Checks And Defaults Explained

If you’re new to the world of credit, here’s everything you need to know about what a credit check is.

If you’ve ever rented or bought something on finance you’ve probably heard the words “credit check” and that failing or receiving a bad score can have some bad consequences.

The good news is that a credit check is definitely less scary than it sounds and there are a few easy things you can do to make sure you pass a credit check. If you’re not sure what a credit check is or have any questions about credit and applying for credit applications, we’ve got everything you need to know about credit checks and what you can expect if you know you’re going to have one.

What is a credit check?

A credit check is a search that a company can do to see how you’ve spent credit in the past to see if you’re a responsible borrower. When someone carries out a credit check on you, they will get access to your credit file which will include information on previous credit you’ve taken out or applied for as well as any information on payment defaults such as bankruptcies.

The exact details of what companies or potential lenders can see will depend on whether they carry out a soft or hard credit check.

What is a soft credit check?

A soft credit check will normally take place if you’re looking for a quote to take something out on finance such as a phone, get a credit card, or if you want to use a pay later service such as Klarna or Paypal pay in 3.

When companies run a soft credit check they get access to your basic information to see if you are eligible to take out credit. So, if you’re thinking about getting a credit card and are doing a comparison online of different cards, a soft credit check will be undertaken to check that you can afford and are likely to pay back a credit card.

Soft credit checks will show up on your credit report, for example, if you do multiple searches for credit or buy a lot of things on a buy now pay later service in a month but it won’t impact your credit score. So, if you’re buying something online and it says a soft credit check will be taken it’s not really anything to worry about.

What is a hard credit check?

A hard credit check is a complete review of your credit report and it may affect your credit score. A hard credit check will normally happen when you actually apply for a credit card or take something out on finance.

Hard credit checks show up on your report and can impact your credit score, especially if you have multiple hard credit checks within a short space of time. So it’s always best to try and keep these to a minimum. Luckily, hard and soft searches aren’t on your report permanently and will eventually be removed.

Does a hard search affect your credit score?

Yes, a hard credit search can affect your credit score. If you have one hard search on your report you’re unlikely to see a huge impact but if you make multiple applications for credit in a short space of time and have multiple hard searches on your report, this can have a big impact. Multiple hard searches will show potential lenders that you may be bad with money or financially irresponsible, which will not only lower your score but also impact your chances of being accepted for credit in the future.

So, if you’ve recently taken out a credit card it’s best to not take out any other forms of credit until the hard search has been removed from your file.

How long do hard searches stay on your credit file?

A hard search will stay on your credit report for up to 12 months, so bare this in mind if you’re thinking about taking out multiple items on finance or getting a credit card.

Luckily, hard searches will be removed eventually so if you do have one or two on your report, while it might initially impact your credit score, once they’ve been removed your score should increase again.

What do credit checks show?

A basic credit check will show:

• Whether or not you’re on the electoral roll
• Personal information such as your address, job title and salary
• Court records (if you’ve ever filed for bankruptcy or have any defaults or County Court Judgements)
• Details about your accounts (bank accounts, credit cards, overdraft limit etc.)
• What credit you have taken out and applied for
• Your existing debt
• How much credit is available to you

How to pass a credit check

If you’re worried about passing a credit check there are a few things that you can do. If you know you don’t have any CCJs or court-related issues with money, you can make sure your credit report is healthy by getting on the electoral roll and making sure that you don’t apply for credit too often.

You can regularly check your credit score on free websites such as Clearscore and Experian to see if you have anything on your report that could impact your credit score.

If you know you need a credit check for renting and you’re worried about not passing, there are other things you can do if you do fail, such as finding a guarantor or paying more money upfront so try not to stress if you think you might fail.

How long does a credit check take?

Credit checks can normally be completed in seconds or minutes if you’re applying for credit online. However, if you’re trying to rent a house and are undertaking referencing and credit checks it can take a few days for the credit check to take place, depending on what credit reference agency the company or lender undertaking the credit check is using.

What is a credit reference agency?

A credit reference agency is an organisation that holds information and data about you, including your credit and financial history. There are a few different credit reference agencies in the UK including Equifax, TransUnion and Experian.

The credit reference agencies decide on your credit score and provide the information available on your credit report for lenders and other companies to see.

What are defaults?

A default may appear on your credit report if you have missed payments and the lender has closed your account as a result of this. This could be a utility company or mobile phone company for example.

Normally defaults will happen when you miss 3-6 months’ worth of payments and you will normally be instructed and chased to pay back what you owe. This information could be passed on to bailiffs who could contact you to get the money back.

You will know if you have any defaults as the company would’ve made you aware if you’ve missed any payments and that they are closing your account as you haven’t paid.

Defaults can impact your credit score and make it difficult to apply for credit in the future, so if you’re falling behind on money it’s important to try and stay on track of how much you owe.

How long do defaults stay on your credit file?

Defaults can stay on your credit file for six years. This means that if you receive a default when you are 21, it will stay on your account and be visible to other lenders until you’re 27. This can make it very difficult to get accepted for credit, so if you want to buy a house a few years after getting a default, you may find it tricky.

How to get defaults removed

In some cases, you might be able to get a default removed from your credit file if you can prove that it is inaccurate. You would need to raise a credit dispute and get in touch with the credit reference agency who would then contact the lender to check the accuracy of the data they originally provided.

If you are disputing a default, a notice of correction will appear on your file which shows other lenders that the information on your credit report might not be correct. If the default was a mistake you can get it removed this way, however, if you get a default and it isn’t the result of a dispute, unfortunately, you can’t remove it from your credit file.

What is a default notice?

If you are behind on payments for something, the lender will normally give you a default notice to let you know that you are behind and that they are going to close your account unless you catch up on what you owe. This is basically a warning that you’re at risk of getting a default and a chance to pay off your debt before you get a default which will impact your credit score for six years.

Does your credit score go up when a default is removed?

Yes, if you have one default on your credit score your score is most likely to improve once the default has been removed. However, if you have multiple defaults the removal of just one is unlikely to show a huge difference in your overall score.

Can you get a mortgage with a credit default?

Yes, it is possible to get a mortgage if you have defaults on your credit report but it will definitely be a longer process and can be quite tricky. If you do have defaults it’s likely that you will be rejected for a mortgage from most high street lenders, however, there are specialist lenders out there that can help you to own a home. You will have to do your research and get a specific mortgage advisor who can help you to improve your application, however, you will need to be honest about your credit history from the start to help improve your overall chances of being accepted for a mortgage.

For more information on credit cards and credit checks, check out what is a credit score and how you can improve it.