When you apply for a loan or mortgage, the information a lender uncovers during a credit check is crucial. It can determine whether you’re approved and influence the interest rates you’re offered. However, credit checks can often seem confusing.
In fact, a Royal London survey found that one-third of Brits had never checked their credit report.
Here’s the good news: We’re here to demystify the process, so you can feel confident the next time you apply for credit.
Why Lenders Conduct Credit Checks
Lenders perform credit checks to evaluate the level of risk involved in lending to you. Your credit report provides a snapshot of your financial stability and reliability, including:
Personal Details
Your name and address
Borrowing & Payment History
Records of your past loans and repayments
Current Borrowing & Credit Limits
Your existing debts and available credit
Financial Associations
Details of people financially linked to you, such as a partner
If the credit check suggests you might default on repayments, lenders may either offer you a higher interest rate, increasing the cost of borrowing, or reject your application altogether.
Hard vs. Soft Credit Checks
There are two types of credit checks: hard and soft.
Soft Credit Check
Occurs when you or a lender review your credit report for pre-approval offers. These checks do not appear on your report and do not affect your credit score.
Hard Credit Check
Conducted when you apply for credit, such as a mortgage or credit card. This type of check provides a comprehensive look at your report and remains visible to other lenders for up to two years. Multiple hard checks in a short period can signal financial distress and negatively impact your ability to borrow.
Remember, hard credit checks require your permission.
Don’t worry if you find these terms confusing; we’re here to help you understand them.
6 Steps to Improve Your Credit Report
By reviewing your credit report before applying for credit, you can take steps to enhance how lenders view you. Here are six useful tips:
Correct Errors
Check your report for mistakes and contact the provider to correct them.
Register to Vote
Being on the electoral register can demonstrate stability.
Reduce Debt
Lower your outstanding credit balances.
Pay More Than the Minimum
Make larger payments on loans or credit cards.
Avoid Late Payments
Automate bill payments to ensure timely payments.
Be Selective with Credit Applications
Avoid applying for multiple new credit accounts in a short period.
Seek Professional Advice
If you have questions about your credit report or are concerned about its impact on your future borrowing, including securing a mortgage, don’t hesitate to reach out. Contact Serenity Financial Advice at 01299 333186 or email us at info@serenityfinancialadvice.co.uk to discuss your concerns and financial plans.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Approved by The Openwork Partnership on 20/12/2023.
