How Does A Credit Check Work?

If you are applying for a mortgage, payday loan, credit card or any other type of loan, it is pretty much a given that a credit check will be carried out on you. So what exactly is a credit check, how does it work and why is it so important?

What is a credit check?

Lenders will often conduct a credit check, looking at your personal financial information in order to determine if you are a suitable applicant or not for a loan. They are able to see whether you have any existing debts on your file, whether you have made prompt repayments or not, and whether you have a joint bank account or mortgage with someone who has a good or bad credit rating.

Most lenders will use one of the three main credit reference agencies in order to access your financial information. These are Call Credit, Equifax and Experian who are the most reputable and reliable credit companies. If you are making an application for credit, lenders will make sure they have received your approval prior to carrying out a credit check. This is often through a terms and conditions form on a website or application form.

Once you have accepted the terms and conditions and your application has gone through to be processed by the lender, it will usually instantly be credit checked. Many lenders, if not all, have this integrated into their systems so that they can quickly and efficiently determine whether the applicant should be a recipient of a loan from their company.

When are credit checks used?

Credit checks are conducted on a whole host of different things, but most of the time it is for:

  • Secured loans
  • Payday loans
  • Mortgages
  • Broadband
  • Mobile phones
  • Store cards
  • Credit cards

Depending on the result of your credit check, and whether it is good or bad, you could be accepted or declined for an application for any of the above. Or alternatively, you may receive better interest rates or higher rates of interest (such as for a mortgage or a credit card)  depending on the score rating.

You are also able to find out your own credit score rating by doing your own credit check with any of the three credit reference agencies aforementioned in this article.


What is a good credit score?

A good or bad credit score depends on the particular credit reference agency you decide to choose. This is due to the fact that agencies use different metrics in order to assess your credit score and use different criteria. As a result, there exist different credit rating scores.

Nevertheless, it is very easy (and often completely free to see your credit score as a one-off) by contacting one of the three agencies online, or by post. We take a look at the credit rating systems of Call Credit, Equifax and Experian and what each of these systems means in terms of a good score.

  • Equifax: A rating of at least 420 out of a possible 700 on their scale
  • Call Credit: A rating of 4 out of 5 on their rating scale
  • Experian: A rating of 880 out of a possible 999

What do you see on a credit check?

If you decide to carry out a credit check on your file, or a lender, you will both receive a credit score rating. This rating determines whether a lender feels they can work with the applicant and accept or decline them, or alter their interest rates.

The personal information that is seen on someone’s credit check file includes:

  • Any history of CCJs and bankruptcy
  • Your full name and date of birth
  • Any loans, mortgages or credit cards accounts that are currently open on your account will be on the file. This also includes the start dates of when the accounts were opened, as well as the amounts you have loaned.
  • All accounts that have been closed over the past six years will also be present on your credit file.
  • Any joint accounts that you have opened
  • Your address and previous addresses, accessed through the electoral roll
  • If your information has been used for fraud

What is a credit search footprint?

Every time a lender runs a credit check on your profile this leaves a ‘search footprint’. This shows to others who subsequently look at your profile who has previously looked at it. Your credit search footprint is updated by the three main credit reference agencies in the country.  There are also different types of credit search footprints: hard and soft: The former refers to a search lasting longer than 12 months, whilst a soft search is unlikely to leave a long-term impact on their credit score, nor leave much of an imprint on your file.

How long do credit search footprints last?

You will be able to see how long the footprint will be on file through the credit reference agency you choose. This footprint will remain on your file whether or not the application you have made for credit has been successful. Simiarly, the footprint will stay on file even if you have been accepted for credit, and whether you have paid promptly, defaulted or arranged. Generally speaking, it works like this:

  • A year for credit applications
  • Two years for searches carried about by debt collectors
  • Six year for searches for fully funded credit

Are credit search footprints good?

According to credit reference agency Equifax, having up to 12 credit search footprints yearly is a normal amount to have. However, if you have more than this, possibly because you are making dozens of applications for credit at once (which isn’t recommended for this very reason) then it could end up working against you with loan providers. This could affect your credit score negatively, as it could give the impression you are desperate for credit, or, alternatively, it may indiciate to a lender that you are a victim of fraud. This is because if lots of applications are made in a short space of time, it appears that someone is trying to steal money from you.

Daniel is a loans expert based in London and has been working in the payday loans industry since 2010.