Whether you’re thinking about applying for a mortgage, credit card, personal loan, overdraft, car finance, or any other form of credit, the lender typically conducts a credit check as part of their decision-making. For some job roles, especially in the financial services sector, credit checks are run on applicants as standard. Employers will start off by validating someone’s identity by verifying their identity documents, then use the information in a credit check to help them decide whether to employ or not.

Usually, a credit check involves examining someone’s credit report, which will flag up any problems the individual has had in the past with making payments. A credit check will also show up any persistent debt, and how much other lines of credit the applicant has already. Most lenders and employers will use a credit check as just one of the factors they use in their decision-making. They will also look at how you have managed accounts in the past, or in employment decisions, your CV and experience.

Why do Lenders Do Credit Checks?

Lenders do credit checks to work out whether there are any risks associated with offering you credit and how likely you are to pay it back, based on your financial history and personal circumstances. Employers want to know whether your debt position might put you at risk of committing fraud in a responsible position in the organisation. Depending on the type of credit you want, lower interest rates might be offered to applicants considered low risk.

What is a Hard Credit Check?

A “hard” credit is when you submit a full credit application, for example a credit card or loan application. The lender will do a thorough review of your credit report the fact you have applied for credit will be recorded on your credit file and might have an impact on your credit score. As well as when applying for credit, loans or mortgage, hard credit checks will be done when you are taking on a new rental property, mobile phone contract or utility bill. Lenders and other companies such as a letting agency are not allowed by law to run a hard credit check on you without your permission. Too many applications for credit in a short period of time can ring alarm bells with lenders, so should be avoided.

What is a Soft Credit Check?

A “soft” credit check is commonly used for insurance or credit quotes, mortgage pre-approvals, credit card eligibility assessments, and by price comparison websites. A soft credit check is often marketed as a way of checking whether you are likely to be accepted if you decide to proceed to a full application. Checking your own credit score and report also counts as a soft check. Soft checks will not affect your credit score, so you can check your credit score on one of the popular apps as often as you wish.

Most credit checks run by employers are soft checks; they are simply assessing your financial position and getting information about your debt.