A credit search is when a loan provider looks at credit information from your credit report to gauge an understanding of your financial behaviour. To carry out this credit search, there must be a legitimate reason such as when availing a loan.
When a loan provider looks at your credit report, they check the level of credit you currently have available, the way you manage said credit and if you have made credit payments on time. Also, your financial associations will be looked into. Let’s say that you have a joint bank account, the other person belonging to your account will also have their credit history checked. There are 2 types of credit searches are described as follows.
What is a Soft Search Credit Check?
A soft credit check is when loan providers check particular information on your credit report. The loan providers can determine the success of your loan application without conducting a comprehensive examination of your credit history.
When soft searches are conducted, they are not visible to other companies and lenders. Also, there is no impact on your credit score or on any future loan applications you may need. The scenarios when a soft search occurs is below.
- If you search for your own credit report.
- If you use Experian (Credit Rating Agency) to compare loans and see your eligibility.
- If a company or organization searches your credit report for identification purposes.
What is a Hard Search Credit Check?
A hard search credit check is when loan providers check your entire credit report in detail. However, each time a hard search is conducted, it will be displayed on your credit report which can be seen by other companies and loan providers.
If you have frequently made hard search credit checks within a short duration, your credit score will be negatively affected. Lenders will also perceive you as someone who heavily relies on credit which will reduce the number of loan offers you can avail. The scenarios when a hard search occurs is below.
- If you apply for a loan, mortgage or credit card.
- If you apply for a pay-monthly mobile phone contract.
What are Soft Search Loans?
Soft search loans are offered by certain loan providers who only conduct soft searches on your credit report and then provide you with the most suitable loan. These providers do this so as to not leave any kind of footprint or negative impact on your credit report. Soft search loans can be taken for most loan types such as a personal loan, credit card loan, vehicle loan, student loan, etc.
However, if you get accepted by a lender that offers soft search loans, you should ensure that you can meet the monthly repayments. Do not borrow a loan amount that is well beyond your means as the chances of you defaulting on making repayments is higher which will lead to a dent in your credit score.
The Types of Loans Offered in the UK
There are many types of loans offered for residents in the UK, some of the most popular loans are listed below.
This is the most common loan type in the UK. Student loans are availed to pay off the education fees. The loan amount has to be repaid by the applicant after the duration of the education course is completed. Most students use soft search loans to check and compare the best offers and rates.
Credit Card Loans
If you use a credit card to make purchases, you will receive a bill at the end of the month. You can either pay the entire bill at once or pay just a small portion of it now and the remaining amount at a later date. However, in credit card loans, there will be interest charged on the remaining amount which will act like a loan. Many people first check their eligibility by using soft search loans, this way they can check if they qualify for the loan first.
Generally in the UK, vehicle loans are issued by banks. Car dealers can also issue vehicle loans if they partner with private loan providers. When it comes to this type of loan, monthly repayments are required to be paid over a fixed tenure and often come with high-interest rates. These vehicle loans can also be used to purchase second-hand cars.
Using a soft search loan to check if you can avail a vehicle loan is advisable as once the vehicle is obtained, it will be used as collateral until you have completed paying back the loan amount.
Soft search loans on mortgages are available in the UK. When availing this type of loan, the applicant will have to deposit a relatively large amount as down payment as most mortgages undertaken will not cover the entire cost of the house. These loans are to be repaid right after they are availed using monthly interests and principal repayments amounts. Mortgage loans use the house as a security against the loan as they are long term loans.
You can check your eligibility and loan options when using soft search loans how many times you want as they do not impact your credit score and do not reflect on your credit report. However, do keep in mind that just by using a soft search loan online, there is no guarantee that you will get to acquire the loan as many lenders look into other factors depending on the loan amount you wish to avail.