Having a loan application denied is frustrating. Just as annoying is the fact that - regardless of the outcome - a record will normally appear on your file that could influence your future ability to borrow.
Some lenders will check your credit file to learn about your borrowing history. Using this information, they determine whether you’re high or low risk and then approve or reject your application.
They’ll also be looking for things like Debt Relief Orders, bankruptcy, or County Court Judgments. Any of these could act as red flags and strongly influence their decision.
Of course, each lender’s criteria is different and not all visits to your credit report show. At Salad Money, we use Open Banking to determine whether you’re eligible for a loan with us, which looks at your current spending habits rather than your credit report.
For other situations, you can carry out a soft credit check, which won’t won’t be visible to anyone but you.
In this guide we’ll:
- Explain what the term soft credit check means
- Discuss who uses them and the reasons why
- Compare soft searches against hard checks
- Explore ways to avoid credit checks altogether
What does a soft credit check show?
In some cases, a mark will be left on your credit report after a lender has viewed it. But there are exceptions. In the case of a soft credit search, no trace is left behind. This means no ‘digital footprint’ will be visible to other lenders when reviewing your file.
So what sort of checks count as ‘soft’? Furthermore, how will you know before making an application? A soft credit check could be something like an identity check or a quotation. However, if you need reassurance, ask your lender what sort of check they’ll run.
In the examples above, your lender would be looking to confirm information about you, such as your name or address, rather than assessing your suitability for a loan. This is why it would be classed as a soft credit check.
Another example of a soft check is when someone reviews their own credit report. As before, this would not show on their file.
However, soft credit checks are recorded. This can be helpful - as it means you can see who has checked your credit history.
Contrastingly, hard credit checks will show on your file and typically in cases where you’ve applied for:
- A credit card
- Personal loan
A hard check will remain visible on your file for approximately 12 months (we’ll look at this in more detail later).
Important: be aware that soft checks still form part of your credit file and will, therefore, show if you email or send a hard copy of it to a business for review.
What does a soft credit check involve?
So, we know that soft credit checks are invisible to anyone who views your file. We’re also aware that each visit creates a log that lets you track who has been looking. But why would someone pull your file if they’re not approving you for credit - and what sort of information would they be looking for?
Someone might soft-check your file because they:
- Want to delve deeper into your payment history before approving your application to rent a flat or home.
- Need to check some important details before pre-approving you for a credit card or personal loan.
- Are your employer, and need to run certain checks before allowing you to manage the business’s finances.
What can these organisations or companies do with that information? Other than use the information to guide their decision making process, nothing at all. To approve you for a loan, they’d need to complete a hard credit check - and that would show on your record.
What is a hard credit check?
If you need to take out a loan, the lender or business you applied to will look at your credit report. This will result in a hard-inquiry being placed on your file that anyone can see. It will also be used by other financial businesses and institutions to make decisions about applications you make.
Your immediate reaction to this information is probably one of concern. After all, you’re likely to apply to multiple lenders when securing credit - which means dozens of logs will be made against your file. In fact, this is not the case.
Minimise your hard checks
Although a hard check will show on your file, multiple inquiries made in a short timeframe will normally be counted as a single query. But it is still good practice to minimise the number of hard inquiries you make, especially if you’re planning on taking out a large loan like a mortgage in the near future.
How to avoid credit checks
Avoiding credit checks altogether isn’t easy. Unless you have money in savings - or a pot of cash stashed away somewhere for a rainy day - you’re going to need to raise funds for that planned extension, new car, or home renovation project somehow.
It’s also important not to get too bogged down with the idea of credit scores. Every lender’s criteria is different and rejection can happen for a range of reasons beyond your control. For example, your score might be perfect - but the provider you’ve applied to might view your application as unprofitable.
So, apart from soft credit checks, what can you do?
- Budget like mad and funnel those pennies into a savings account. This will take time - so may not work if you need money in a hurry.
- Take on a part-time job or freelance in your spare time. It doesn’t have to be forever - just long enough to raise the funds you need.
- Sell things you no longer need. You’ll be surprised at just how much money you could make selling unwanted items online or at a market.
- Borrow from a family member or close friend. This can work - provided some sort of agreement is drawn up to protect both parties.
Not all lenders run credit checks
The financial sector is evolving to meet the needs of its customers. One important development you’ll be interested to learn about is Open Banking.
What is Open Banking? It allows customers to give providers read-only access to financial information, such as their bank statements. This means that lenders, for example, can make decisions based on real data instead of a score on a credit report.
Introducing Salad Money
At Salad Money, we specialise in providing small short-term loans to NHS and public sector workers who might struggle to get credit elsewhere. We’re fully regulated by the Financial Conduct Authority (FCA) and give our customers full control over their data - meaning that they can opt out of sharing their financial information with us at any time.
With a 5-star rating on Trustpilot, we are a popular choice for NHS and public sector workers looking for a fast and safe way to secure an affordable loan for their immediate and most urgent needs.
Apply online now or contact a member of our team via webchat, email, or telephone to learn more. No hard or soft credit checks will be required if you do decide to apply.