Credit Score Basics > Does a decision in principle need a credit search?

Does a decision in principle need a credit search?

Wollit Team2 minute read · Updated 29th June 2024

A decision in principle for a loan or mortgage always involves a credit search (or “check”), but the impact on your credit score can vary depending on whether it’s a soft or hard check.

Most lenders perform a soft credit check when you apply for a decision in principle, which does not affect your credit rating.

However, some lenders may conduct a hard credit check, which can temporarily lower your credit score.

You should always confirm with each lender whether they use a soft or hard credit search when you apply for a decision in principle.

How does a soft credit check work?

A soft credit check, also known as a soft search or inquiry, is a quick review of your credit report that does not affect your credit score. It is usually used for pre-approvals, background checks, or when you view your own credit report.

Some key points about soft credit checks:

They allow lenders to get a quick look at your credit report and score to see if you’re eligible for a product.
This usually happens when you check your own credit report, when employers check your credit for background checks, or when credit card companies check to pre-approve you for offers.
Soft checks are visible on your credit report but are not seen by lenders when you apply for credit. Only you can see them.
There is no limit to how many soft checks you can have, and they will not hurt your credit score.

In contrast, a hard credit check happens when you officially apply for credit, such as a loan or credit card. Hard inquiries can temporarily lower your credit score and are visible to other lenders when you apply for credit.

Which factors affect a decision in principle?

Several key factors can affect a decision in principle for a mortgage:

Your income, including salary, bonuses, benefits, pensions or investments, is a major factor. Lenders want to be sure that you can afford to comfortably make the monthly mortgage payments.
Lenders also look for consistency in your income. This is why self-employed people generally have a harder time getting a decision in principle, and need more documents. If you’re self-employed, get ready to show two or three years of tax returns.
Existing debt and other commitments, such as things like credit cards, loans, childcare expenses, etc., all matter. Lenders need to know that you have enough disposable income to cover the mortgage payments.
The value of the property you want to purchase is also crucial, as the mortgage will be secured against it.
Finally, your credit rating and credit history also play a major role in a lender’s decision. They will look for any missed payments, defaults, or arrears on your credit report. Lenders want to see that you’re a responsible borrower.

Even if you get a decision in principle, you need to understand that it’s not a guarantee of a mortgage offer. Lenders will still have to run a detailed credit check when you submit a full mortgage application, and the final decision may differ from the decision in principle.

This is why it’s so critical to keep working on your credit history. The good news is that now there are many apps that can help you build and improve credit. One such app is Wollit.

Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all credit reference agencies. This helps you build a history of timely debt repayments, which is the main factor that matters for your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian, the largest credit reference agency in the UK. This can add another line in your credit report that shows lenders you pay you’re a responsible person, helping you make the most of your rent while you get ready to buy a property.