How Credit Checks Work in Bad Credit Loan Applications

A clear explanation of soft searches, hard searches, and what lenders must assess.

If you have bad credit, one of the biggest concerns is often:

“Will applying make my credit score worse?”

Understanding how credit checks work — and when they happen — can help you make a more confident decision before applying for a loan.

This guide explains:

• what lenders check during an application
• the difference between soft and hard credit searches
• how your credit file may be affected
• what the Financial Conduct Authority (FCA) requires lenders to do

For a full overview of costs, eligibility, and risks, see our main page on bad credit loans in the UK.

Why lenders carry out credit checks

Credit checks are not carried out to “catch people out”. They exist to help lenders assess:

• your existing credit commitments
• your recent repayment behaviour
• signs of financial difficulty
• whether additional borrowing may be affordable

Under FCA rules, lenders must carry out a reasonable and proportionate creditworthiness assessment before offering credit. This requirement is set out in the FCA Consumer Credit Sourcebook (CONC 5.2A).

The purpose is not simply to look at your score. It is to assess whether lending would be responsible.

What is a credit reference agency?

When lenders perform checks, they may use data held by credit reference agencies (CRAs) such as:

• Experian
• Equifax
• TransUnion

These agencies hold information about your borrowing history, repayment patterns, and public records such as CCJs.

You can learn more about how credit reports work from the UK’s independent financial guidance body at:
https://www.moneyhelper.org.uk/

Soft credit checks vs hard credit checks

Understanding the difference is important.

Soft credit check

A soft search:

• helps assess eligibility
• is visible to you on your credit report
• is not visible to other lenders
• does not usually affect your credit score

Soft searches are often used in early-stage assessments.

Hard credit check

A hard search:

• is recorded on your credit file
• can be seen by other lenders
• may have a small, temporary impact on your credit score

Hard searches are typically carried out when a lender is finalising a formal credit agreement. If multiple hard searches are recorded within a short period, other lenders may interpret this as increased credit risk.

When does a hard search happen?

The FCA does not require a hard credit search to be performed at the very start of every application. Instead, lenders must gather sufficient information to assess affordability and creditworthiness.

In practice:

• initial checks may involve eligibility and affordability review
• a hard credit search may only be carried out if progressing to a formal offer

You should always be informed before a hard search is completed.

If you are unsure how this applies in your situation, our page on soft vs hard credit checks explained provides further detail.

Do credit checks lower your score?

A single hard credit search usually has a small and temporary effect, if any.

However:

• multiple applications within a short timeframe
• missed repayments
• high credit utilisation

are more significant factors affecting your credit profile.

Applying carefully and understanding the process can help avoid unnecessary searches.

What lenders assess beyond your credit file

Credit checks are only one part of the assessment.

Lenders must also review:

• your income
• essential living expenses
• existing financial commitments

This is known as an affordability assessment. You can read more in our guide on what an affordability assessment involves.

Even if your credit history is poor, borrowing may still be declined if repayments would not be sustainable.

Can checking your eligibility affect your credit?

Eligibility checks often involve soft searches. These allow lenders to assess whether you may qualify without committing you to a formal application.

However, if you proceed to a formal agreement, a hard search may be required.

Understanding this distinction helps you make informed decisions when considering bad credit loans.

When applying may not be suitable

If you are already struggling with multiple debts or missed repayments, applying for further credit may increase financial pressure.

In such cases, it may be safer to:

• seek free debt advice
• review your budget carefully
• consider alternatives before applying

Independent guidance is available from organisations such as MoneyHelper.

Key points to remember

• Credit checks are required to assess affordability and responsibility.
• Soft searches usually do not affect your credit score.
• Hard searches may be recorded but are often temporary in impact.
• Affordability matters more than credit score alone.
• Responsible lenders must follow FCA rules before offering credit.

Learn more before applying

Before deciding whether to proceed, you may find it helpful to review:

• Our overview of bad credit loans in the UK
• Common reasons loan applications are declined
• What an affordability assessment involves

Understanding how the process works is part of making a responsible financial decision.

Important reminder: Late repayment can cause serious money problems. For help, go to moneyhelper.org.uk.