What is a credit check?

Everything you need to know about credit checks

There are a lot of myths surrounding credit scores and credit checks and it can be hard to separate the two. The terms credit score and credit check are often used in very similar circumstances, but they have big differences. Credit checks can be confusing, and many people are concerned about the affect to their credit score. However, Refused Car Finance are here to help! Read our full guide on everything you need to know about credit scores and credit checks below…

What is a credit score?

Your credit score is a number shown on your credit file and your individual number represents your ‘creditworthiness’. This number shows how trustworthy you are when it comes to paying back any credit, loan or finance that you have borrowed. The credit scale can vary numerically depending on which type of credit refencing agency you use. Many credit referencing agencies have a numerical rating which falls somewhere on a scale from poor to excellent credit.

People with ‘excellent’ credit are seen as less of a risk to the lender as they tend to have had no problems in the past making repayments. This means they are more likely to get accepted for credit. People with bad or poor credit history can sometimes struggle to get approved and may be declined finance, if you’re applying for bad credit car finance, this is where Refused Car Finance can help!

Your credit score is important as it is an indication towards your financially history and if you can be trusted to pay back any credit in the future. Potential lenders will usually check your credit score to decide whether or not they want to offer you finance. We take into account your credit score but also other factors such as income and affordability to get you approved! Your credit score is affected by a few different main factors.

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Your credit score is made up of a few main factors:

Payment history. This is probably the most important factor in credit scoring. Lenders want the assurance that you will pay back your credit or finance on time and in full, so even one missed payment on your credit file can have a detrimental effect to your score.
Credit utilisation. It is advised that you keep your credit utilisation ratio below 50%. This means that out of the total amount of credit you have available, you should limit yourself to only using 50% of it. For example, if your credit limit was £1000, you should only use about £500 of that. Maxing out credit cards, store cards etc can decrease your score.
Length of credit. Having credit for a long time is not a bad thing if you pay it off each month. For example, a mortgage will be recorded on your credit file and is usually paid off in 25 years (on average). However, opening multiple new accounts in a short period of time can harm your score.

Not sure where you fall on the credit scale? Check your credit using a free and reputable credit referencing agency such as Credit Karma.

Why should I check my credit?

It is recommended that you get into the habit of checking your credit file and credit score every month. Before you apply for finance, it is advised that you check your credit report. You can check your report fro any mistakes or information that is not up to date and contact your credit referencing agency to get it fixed. This can increase your chances of getting approved too. Got bad credit? Don’t worry, even if you check your file and your credit score is a little on the low side, Refused Car Finance can help!

A credit check or credit search is when a company or potential finance lender looks at your credit file to understand your financial behaviour. They will usually look at your credit score, your past credit and whether you’ve made your payments on time. They may also look at any financial connections you have. If you have taken out a joint car finance deal in the past, then you may be financially linked on your credit file. A credit check is usually split into two types, a hard search and a soft search.

Soft search credit check

A soft search credit check is when potential lender is able to view part of your credit file without leaving a mark. When you apply for finance with Refused Car Finance, we only provide a soft search on your credit file. We just take a quick look at your credit file to see where you fall on our scale and then along with your affordability, we match you up with the most suitable lender for you! A soft search is great as it is not recorded on your credit file and doesn’t harm your current credit score.

Hard search credit check

A hard search is performed when a lender wants to look at your full credit file. You will usually be notified on a website application form that you are about to perform a hard search that could affect your score. Each time a hard search is conducted, it is recorded on your credit file and also lets lenders know the outcome of this application e.g. whether you were accepted or declined for finance. You should also be aware that making multiple applications with a hard search in a short space of time can negatively impact your credit score. If possible, its best to stick to soft search applications only.

Looking to boost your credit score? See our top credit building tips!

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Ready to make a soft search application that wont harm your credit score? Apply with us today.