What is a credit check?

A credit check is a search of your credit and borrowing history which is conducted by online lenders and other credit providers such as banks, mobile phone providers and utility companies.

It helps lenders to do three main things:

Face smiling about credit checks Verify your identity
Bank notes from an existing loan See your existing financial commitments
Credit card records on credit files View your repayment history for previous loans and credit commitments

How do they work?

Whether you apply for a payday loan for a few days or an instalment loan with repayments spread over a number of months, a lender will usually carry out a check of your credit file. The company you’ve applied with can use any or all of the 3 main credit reference agencies:

Equifax Experian CallCredit

Seeing a snapshot of your credit file helps the lender get a picture of your past credit history and assess your creditworthiness for the loan that you would like to take.

Each credit reference agency will calculate their own credit score based on a number of factors, including some or all of the following:

A small calendar How many accounts you have settled within the last 6 years, including any late payments
List of checks If you are currently registered on the electoral roll or not
A blank clipboard for check lists How many credit commitments you currently have
A house which might require a credit check for a mortgage Your current and previous addresses
A hammer to represent a court ruling to collect debt History of any debt you have, including any CCJs, IVAs, bankruptcies or debt management plans within the last 6 years
A card image reflecting past and existing credit commitments Mortgage accounts, credit cards and overdraft facilities on your current account
A calendar to show records of past credit applications Any previous credit applications you have made in the last 12 months
A couple holding hands Your financial associations
PLEASE NOTE this is not an exhaustive list, You should contact the CRAs directly to find out more about your individual score and their approach to credit scoring if you require any further information. For Equifax visit: https://www.equifax.co.uk/
For Experian visit: https://www.experian.co.uk/
For Callcredit visit: https://www.callcredit.co.uk/

Lenders will ask your permission before conducting a credit search and once they have seen your credit file, they will assess that information against their own specific lending criteria to help them make a decision on whether to lend to you or not.

There are a number of different types of products that may require a company to carry out a check on your credit file such as: mortgages, credit cards, long or short term loans, payday loans and even mobile phone contracts and store cards.

Why do lenders need to do credit checks?

Lenders must fulfil their legal responsibilities by ensuring that their lending practices are in line with the FCA’s consumer credit regulations and they must carefully assess a customer's suitability for the requested credit product.

For more information on FCA lending regulations, see our page about the new lending rules:

Many lenders ensure that a full credit check is conducted as part of their decision-making process.

The check is important in helping a lender decide whether to approve your application so that they can assist you and provide you with the funds you need, or whether to reject your application, and possibly prevent you from making a credit commitment you might not be able to afford at that time.

Put it this way; if you are applying for a job that relies heavily on you being on time, an employer will want to check your history of punctuality from your previous roles to help them gain a better idea of your suitability for the role. It benefits your employer to take on an employee that is likely to be on time and benefits you the employee, as you know you can meet the requirement without difficulty.

What can I do?

Well, it’s important to have an idea of how your credit file looks before you approach a lender for credit. Though what you see on your credit file isn’t exactly what lenders see, what you DO see is often a relatively good indication of how you might appear to them, so by checking your credit file beforehand you can get a good idea of whether a lender is likely to approve your credit application or not.

Some lenders offer a quotation search for customers that are interested in their product, which means they can assess your eligibility for their product before you submit a formal credit application. This is great because this can help you decide if you would like to proceed with a credit application, based on the result you get.

A red tick for credit informationQuotation searches of your credit file can only be seen by you and do not harm your credit rating.

Doing a preliminary quotation search also prevents you from the disappointment of being rejected and making further unnecessary applications, resulting in several checks on your credit file.

Exclamation mark attention sign for credit checksNOTE however that even if your quotation search suggests that you are likely to be approved for a product, it does not guarantee that you will be approved when you submit a formal application.

Formal credit applications are visible to other lenders and though it won’t show if an application you’ve made was successful or not, the number of formal credit application checks on your credit file at any one time CAN affect your credit score.

Read more about the factors that affect your credit file and how to improve your credit score, here.

Ultimately, the decision to lend to you is up to the lender and each lender has their own specific lending criteria which they use to help them make their decision, so just because you have been rejected by one company, it does not mean that you will be automatically rejected elsewhere. Most importantly, you must assess your financial situation as best as you can before applying for credit and be sure that the product you are applying for is suitable for your needs.

Here at clearandfair.co.uk we compare different lenders so that you can find the cheapest payday loan to suit your needs. All of our lenders are regulated by the Financial Conduct Authority and our results are completely unbiased.