More than four in ten Britons, or nine million people, are at risk of damaging their credit scores by confusing soft and hard credit searches.
Around 17 per cent of consumers don’t know that a search carried out during an application for credit can leave a visible footprint on their credit file, according to new research from Credit One Bank.
According to the survey, almost 14 million people (26 per cent) have never checked their credit score, with a further three million not knowing if they have.
Of those who have checked their credit score, the most common reason, accounting for one in five (19 per cent) of searches, was applying for a credit card, up 6 per cent in the past four years.
But it is crucial to know the difference between soft and hard credit check searches – as this can have a very real impact on your money.
Credit check: Around 17 per cent of consumers don’t know that a search carried out during an application for credit can leave a visible footprint on credit files
What’s the difference between these checks?
A hard credit search involves checking an individual’s credit record in depth. This leaves a mark for at least 12 months which other lenders can see on a consumer’s credit file. This can harm their credit score and eligibility.
A soft credit check is an less intense look at certain information on a consumer’s credit report, which will reveal their likely eligibility to lend to.
Crucially, a soft search has no impact on credit score or ability to obtain loans in the future.
By conducting multiple hard searches, such as when applying for new credit cards or loans, especially within a short period of time, consumers can unwittingly damage their credit scores.
Awareness of the differences between hard and soft searches has fallen over the past four years. Around 17 per cent of consumers surveyed didn’t know that a search carried out during an application for credit can leave a visible footprint on their credit file, up from 11 per cent in 2019.
Top myths about credit scores and checks
There are many misconceptions around credit reports and scores. One such example is that being refused credit damages your score.
We asked credit rating agency TransUnion about other common credit rating myths:
Credit blacklists – There is no such thing as a credit blacklist. Credit reports are factual. Finance providers have their own policies when it comes to extending credit, and your credit information is just one factor when they make decisions.
Credit reference agencies deciding who gets credit – Only the finance provider can decide which customers to offer credit to. Credit reference agencies just provide some of the information lenders use when making the decision.
Previous relationships affecting your credit score – Someone else’s credit history can only affect your credit applications if you previously made a financial connection by having a joint agreement.
Checking your credit score multiple times will damage it – You can check your credit score as often as you like with no impact on your score. This is a soft credit check.
How to improve your credit score
There are simple steps you can take to strengthen your credit profile if it is low.
>Read our guide to how to improve and protect your credit rating
Firstly, you should make sure you’re on the electoral register and update this if you move house – this is an important step in helping to strengthen your credit score.
Next, don’t make multiple applications in a short space of time. While many credit searches (such as those used for comparison websites) won’t affect your score, a credit application involves a full credit check, leaving a footprint visible to other lenders.
Seeing multiple applications over a short period can also look desperate to lenders, so be sure to space out applications
Ensuring repayments are made on time will also help. TransUnion research suggests that more than one in 10 people saw their credit score drop due to a missed payment during the worst of the Covid-19 pandemic.
Do everything in your power to pay your bills and credit agreements on time to avoid harming your credit score.
If you have a credit card, you should try to avoid keeping a high balance on it.
Lenders look at how much credit you’re using, so if your credit card balance is high, ensure regular monthly payments are made and try to pay more than the minimum when you can.
You should check your credit report regularly. Making sure yours is accurate and working to improve your score is essential to getting the best mortgage, credit card, or loan.
