Credit Score Basics > Why does a credit check affect score?

Why does a credit check affect score?

Wollit Team3 minute read · Updated 23rd July 2024

Credit checks are an important part of how lending works in the UK, as they help lenders figure out the risk of extending credit to you.

However, what might be hard to understand is that these credit checks can have a big impact on your credit score, and this might then in turn affect your ability to get loans, credit cards, or mortgages. So let’s have a look at why this is the case and what you can do to soften the impact of a credit check.

What is a credit check?

A credit check (also called “credit search” or “credit inquiry”) is a process where a lender or another kind of company checks your credit history and financial information to understand how creditworthy you are. They get this information from one or more of the three major credit reference agencies in the UK: Experian, Equifax, and TransUnion.

There are two kinds of credit checks: soft and hard.

Soft credit checks are the kind that happen when you check your own credit report using a service like ClearScore or CreditKarma. They can also happen when a bank or lender checks your eligibility for a product through one of those “eligibility calculators”, or when a mortgage provider offers you a “mortgage in principle”.

Hard checks, on the other hand, are a thorough look at your credit report, and they’re usually run when you actually go ahead and apply for a loan, credit card, mortgage, or other form of credit.

How do credit checks affect credit scores in the UK?

The most important thing to remember about credit checks is that only hard checks can affect your credit score.

Soft checks allow you to get a sense of your chances of getting a loan, card, or mortgage without hurting your credit score. This is because they’re not visible to anyone else but you, and they don’t leave a mark on your credit file.

Unlike soft ones, hard checks are recorded on your credit file and are visible to anyone checking your credit report. Because of this, hard checks can temporarily lower your credit score.

Here is how this works:

Multiple hard credit checks within a short period can be interpreted by lenders as a sign that you’re suddenly struggling financially.
Since hard checks are part of the loan application process, they can also indicate that you’re getting new debt that is not yet showing up on your credit report (it takes about a month or so). So this can make lenders believe that your debt-to-income ratio might have changed, too.
The impact of a hard credit check on your credit score can last for up to 24 months, although the impact on your credit score will soften over time.

How can I reduce the impact of credit checks on my credit score?

To reduce the impact of a credit check on your credit score, here is what you can do:

Try to limit the number of hard credit checks you undergo by only applying for credit when you are confident you will be approved.
Consider using soft credit checks or pre-qualification tools to explore your options before submitting a formal application.
If you do need to apply for multiple credit products, try to space out your applications over several months to avoid multiple hard credit checks in a short period. Experian recommends not more than two hard credit checks in a six months period.
Regularly check your credit report to ensure that there are no unauthorised or inaccurate credit checks recorded. If you find any, you can dispute them with the credit reference agencies.
Sometimes they may even be a sign that someone stole your identity and is trying to get loans in your name. If you spot a hard check you don’t recognise, get in touch with the credit reference agencies. You should also report it to Action Fraud, the section of the UK Police in charge of cyber fraud.
And, of course, keep working on your credit so you can balance any negative impact from a hard check with a history of on-time credit repayments.

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. This can add another line in your credit report that shows lenders you pay your bills on time, helping you reduce the impact of a few hard checks in your overall credit profile.