The Essentials You Need to Know About Credit Checks Before Borrowing

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 The information a lender finds during a credit check plays an important role in the borrowing process. It can influence whether you're approved for credit, including a mortgage, and may also affect the interest rate you're offered.

However, credit checks and credit reports can often feel confusing. In fact, research from Royal London found that a third of people in the UK have never checked their credit report.

The good news is that understanding how credit checks work doesn’t need to be complicated. With the right guidance, you can feel more confident when applying for credit in the future.

Why lenders carry out credit checks

Lenders use credit checks to assess your financial reliability and determine the level of risk involved in lending to you.

To do this, they review your credit report, which typically includes:

• Your personal details, such as name and address

• Your borrowing history and repayment record

• Any current credit commitments and credit limits

• Details of financial associations, such as joint accounts or linked credit

  
  

If a lender’s assessment suggests a higher risk of missed repayments, they may respond by offering a higher interest rate or, in some cases, declining the application altogether. This is because the perceived level of risk directly impacts the cost of borrowing.

Hard vs soft credit checks

There are two main types of credit searches: soft checks and hard checks.

A soft credit check is used for things like reviewing your own credit report or when a lender carries out an initial eligibility check. These checks are not visible to other lenders and do not affect your credit score.

A hard credit check is carried out when you formally apply for credit, such as a mortgage, loan, or credit card. This type of search provides lenders with a detailed view of your financial history.

Hard searches are recorded on your credit file and can usually remain visible for up to two years.

Multiple hard searches within a short period may have a negative impact on your ability to borrow, as it could suggest financial pressure or frequent credit applications. For this reason, it’s important to apply only for credit that is suitable for your circumstances.

Importantly, a hard credit check can only be carried out with your permission.

If you're ever unsure about the difference between these checks or how they might affect you, professional advice can help make things clearer.

Six ways to help improve your credit position

Reviewing your credit report before applying for borrowing can give you the opportunity to improve your financial profile. You may wish to consider the following steps:

1. Check your credit report for errors and correct any inaccuracies

2. Register on the electoral roll to help confirm your identity and stability

3. Reduce outstanding debts where possible

4. Make more than the minimum repayment on loans or credit cards

5. Set up direct debits to avoid missed or late payments

6. Avoid applying for multiple new credit accounts in a short space of time

Taking these steps may help improve how lenders view your application.

Speak to your adviser

If you have any questions about your credit report or are concerned about how it may affect your ability to borrow — including applying for a mortgage — support is available.

To discuss your options, please contact Kelly on 07976 279076.