When you make an application for credit, from a long term secured loan like a mortgage, to a short term personal loan, chances are, the lender will perform a credit check. If you have a good credit score, this probably won’t worry you, but for those with a less than perfect credit rating, it may be a concern. Not only can your credit score impact your chances of getting a loan, there is the possibility that the check itself could damage your score further.

This is not always the case, however. It’s important to understand which types of credit check will affect your credit rating, and which ones don't leave a footprint. We’ve therefore explored this topic in more detail below:

What is a Credit Check?

A credit check is a way of looking at your history and behaviours in terms of what credit you’ve taken out. It’s also a way of lenders evaluating the risk level, should they decide to lend to you. The loan provider will look at the credit you’ve borrowed, whether it is still outstanding, and if the payments were made on time. Your financial associations, which include people who you have joint bank accounts or mortgages with, will also be taken into consideration. 

Credit checks are not always the same though - there are two main types of check. These are soft and hard credit checks, with the former not being recorded on your credit file, while the latter is reported. As the name implies, a soft check is a less thorough check, and tends to be used for an initial application. A hard check is a more comprehensive look into your credit history.

Will a Credit Check Affect My Credit Rating?

Whether a credit check will impact your credit score will depend on the type of check. A soft credit check, as it’s not reported on your credit file, won’t affect your score. A hard check, on the other hand, can impact your credit rating. Too many hard checks in a short space of time can reduce your chances of loan approval, so make sure you find out which one is being undertaken when you apply for a loan.

The thing to remember is that pre-approval and getting prequalified for credit is likely to come with a soft credit check, while making a full application with a lender will probably come with a hard credit check. You should also be informed before a hard check is carried out, so that you can confirm you wish to continue.

What Factors Do Impact My Credit Score?

Along with hard credit checks, there are a number of different factors that will affect your credit rating. Things that can positively impact your rating are fairly obvious - making repayments on time, and not taking out too much credit at one time. But what about the factors that can lower your credit score? We’ve outlined the key factors below:

Your Payment History

If you make your due repayments late, or miss any payments, this can damage your credit rating. And if you were to default on an account, this could result in severe damage. It’s good to bear in mind that it’s not just loans and credit cards that are reported on your credit file either - things like your rental payments, utility bills and phone contract are also recorded. So making a late payment to your gas or electricity supplier can affect your credit score just as much as loan repayments.

It’s furthermore worth noting that if you don’t have much of a payment history on your credit report, this can also have a negative impact on your score. This is because lenders are unable to determine how you manage your money. Borrowing can therefore sometimes improve your credit rating. 

Your Outstanding Credit

Another factor that affects your credit score is your total debt amount. If you owe a large amount of money, outside of your mortgage, this can damage your rating, as it suggests that you’re relying too heavily on loans and credit cards. 

Your credit utilisation is also important - if this goes above around 30%, your credit score can be negatively affected. For example, if you have a credit card with a limit of £5,000, you should try not to exceed £1,500 in terms of utilisation. 

Types of Credit 

It may surprise you to learn that having a mix of different types of credit can look better on your credit report. This could include things like personal loans, mortgages, vehicle finance, and credit cards. And although having just a few types of credit probably won’t lower your credit rating, it may limit your credit potential.

The average age of your open loans can also affect your credit score. Taking out lots of short term loans, rather than one larger loan, may therefore lower your rating. So it’s important to weigh up your options when borrowing, making sure you opt for the best option for both you and your credit score.

What Happens When I Check My Credit Score?

Some people worry that when you check your own credit score, this can damage it. However, you can check your score as often as you like, without worrying about hurting your credit rating. It’s generally a good idea to check your credit score regularly, particularly if you’re thinking about applying for credit. 

When you check your credit rating, you can see whether there are any problems that need to be addressed. And if you’ve looked into this prior to applying for a loan, you can then see if there is anything you can do to rectify the issue, and give yourself the best chance of loan approval. 

You can check your credit score for free using sites such as Credit Karma and Experian. These websites also offer lots of helpful information about how to improve your credit rating, in both the short term and long term.

Vehicle Finance With Us

We only undertake soft credit checks when you make a loan application with us. This means that there won’t be a footprint on your credit file, and your credit score will not be affected.

You should be aware though that if approved, the lender may then choose to carry out a hard credit check, which may impact your credit rating. You will be informed of any hard checks that are undertaken, and you can then confirm you’re happy to proceed.

If you’re looking to make a vehicle finance application, but aren’t sure if you’d be approved, it may be a good idea to check your credit score, and then use our car finance calculator first. This calculator will give you a rough idea of how much your repayments would be, so you can determine whether the loan would be affordable.