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Credit checks can - and do - affect your credit score. But perhaps not in the way you might expect.

In this article, we’ll demystify credit scores, and explain what steps you can take to protect your score when a third party checks it, for example when you apply for a personal loan.

Koyo uses Open Banking technology, not just information from a credit reference agency so that we can base our lending decisions on your real financial situation – rather than what someone else says about you – and an initial application doesn’t hurt your credit score. Find out more at Representative APR 27%.

How do credit checks work?

A credit score is something that many lenders use in order to make it easier to decide who to lend to. It’s best understood as a kind of financial background check.

In the UK, three credit bureaus (Equifax, Experian, and TransUnion) gather information on all potential borrowers. Their goal is to create a record for everyone in the UK, which contains some of the basic information that a lender might want to know when weighing up your application.

If you’re reading this, the credit bureaus almost certainly have a file on you, and it will contain information like:

  • A list of any credit accounts (e.g. credit cards and your primary bank account), as well as outstanding loans

  • Records of any late or missed payments

  • Details of utility bill payments

  • Your credit utilisation ratio (the proportion of borrowing available to you within your credit limit which you’ve used)

  • Your name and date of birth

  • Whether you’re listed on the electoral register

  • Your current and previous addresses

  • Details of anyone you’re financially linked to (e.g. a spouse who appears jointly on a loan with you)

Credit bureaus provide this information to borrowers to help them to make better-informed decisions, and they also aggregate this information into a “score” - generally a number in the hundreds. 

Confusingly, the three credit bureaus use different scales and different credit scoring models, but a higher score represents a borrower who’s seen as less likely to default. And factors listed above (e.g. whether you’ve paid your bills on time) will affect that score.

So, when you apply for a loan, the lender will generally check your file with one or more of these bureaus. They’ll also do some checks of their own, but the credit file is usually a very important factor - although it’s worth noting that there’s no universal minimum score you need to be accepted for a personal loan.

One important thing to note is that lenders have different requirements, and aren’t always after a particular score - one might not be worried about a few missed payments but will avoid borrowers with large loans outstanding, while another might forgive a credit card but prefer not to lend to people with store cards.

Soft credit check vs hard credit check: What’s the difference?

When a lender carries out a credit check on you, it can do one of two checks: a hard credit check, or a soft credit check. 

Hard credit checks leave a record on your credit file, which is important: if a lender sees a very high number of hard credit checks on your file, over a short space of time, they might see it as a sign of financial distress, making them unwilling to lend to you.

Image showing how avoiding searches can help you to get a car loan with bad credit

What is a soft inquiry?

A soft credit inquiry - also known in the trade as a soft pull - is a credit search that doesn’t leave a record on your credit file. Some examples include:

  • An initial ID check by a potential lender

  • Checking your own credit score

Because they don’t leave a trace on your credit file, you can carry out as many soft credit checks as you like, and not have to worry about the consequences.

What is a hard inquiry?

A hard inquiry does leave a record on your credit file. A hard inquiry can happen when:

  • You apply for a loan or mortgage

  • You apply for a new credit card issuer

  • You apply for a new mobile phone contract

  • You apply to a utility company

Because hard inquiries leave a trace on your credit file, you should be careful when applying for any of the forms of credit above.

Don’t let this scare you - making a few applications from time to time is unlikely to materially affect your credit score. What lenders are really worried about is a series of declines in a short period, which can make you appear desperate.

So, if you’re declined for credit, don’t panic and apply for lots more loans. Instead, consider using an eligibility calculator to get a realistic view of your options before proceeding, and take a look at our guide to what to do if you’re rejected for a loan.

How can I get a personal loan without hurting my credit score?

Taking out a personal loan will affect your credit score. That’s unavoidable - taking out new credit - whether that’s a personal loan, credit card or even a mortgage - will increase the amount of debt you have outstanding, and hit your credit score in the short term.

That’s not the end of the world though: you’ll usually increase your credit score (beyond where it was originally) by making repayments. For more information on this, take a look at our more detailed guides: does taking out a personal loan affect your credit score and does a debt consolidation loan affect your credit score?

Even if you can’t completely avoid affecting your credit score, it’s still worth taking steps so that you don’t needlessly hurt it.

With this in mind, the most important thing is to avoid failed applications and unnecessary hard credit checks.

In order to do this, take some time to understand your situation. All three credit bureaus allow you to check your credit file for free, and in doing this you can do two things:

  1. Get a sense of how strong your credit score is

  2. Check for any errors or identity theft that might be holding you back - credit bureaus are obliged to promptly correct them if you report them

You can use this knowledge, combined with an eligibility calculator, to get a better idea of which loans you’re most likely to be accepted for. And if your credit score is in the “fair” category, you can take a look at our guide to loans for borrowers with a fair credit score.

The other step you can take is to choose providers whose applications don’t affect your credit score when looking for credit. 

Loan providers should tell you clearly whether an application will affect your score, allowing you to decide whether an application is worth the (small) risk. Koyo initially conducts a soft credit search, meaning that an application enquiry will not affect your credit score.

Side note - Open Banking lenders such as Koyo are also less reliant on credit histories when deciding whether to accept a loan application. For more information, take a look at our full guide: Open Banking explained.

Frequently asked questions about inquiries on your credit report

Is it bad to keep checking your credit score?

No - in fact, it can be helpful to check your score every few weeks to keep track of any changes. Checking your own score does not cause it to drop. There are also credit monitoring services run by third parties that take care of this for you - but you should always be able to access a free credit report from the major bureaus.

Why does your credit score go down when you check it?

Checking your own credit file doesn’t actually affect your score. However, a large number of loan applications in a short space of time can make a lender think you’re in financial distress, making them less willing to lend to you.

How many points does your credit score go down for an inquiry?

A small number of applications will probably have only a negligible effect on an otherwise good credit score. However, a large number of applications in a short space of time can make you look like a higher risk to financial institutions, so this is something you should avoid.

How can I check my credit score without hurting it?

Checking your own credit report actually has no adverse effects, so it’s not something you need to worry about. Checking your credit score is free, and you can do it directly via each of the UK’s three credit bureaus: Experian, Equifax and TransUnion (e.g. you can check your Experian credit report for free here).

Does applying for a credit card also affect my credit score?

Yes - applying for any and all types of credit can affect your credit score - that includes credit cards, personal loans, student loans, mortgages, overdrafts, car loans and other finance agreements and mobile phone contracts.

Next steps

While we’ve gone into a lot of detail above, we can summarise it pretty briefly:

  • When you apply for a loan, most lenders will check your credit history

  • When they check your file, they leave a trace that is visible to other lenders, and if you apply for a lot of loans in a short period of time, this might look like a sign of financial distress

  • It’s fine to make a few credit applications, but if you’re rejected, stop and consider your options (which could include an eligibility calculator) rather than carrying on with more applications

Koyo uses Open Banking technology, not just information from a credit reference agency so that we can base our lending decisions on your real financial situation – rather than what someone else says about you – and an initial application doesn’t hurt your credit score. Find out more at Representative APR 27%.

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