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There’s often a lot of fearmongering about credit history and how much it will impact on your everyday life and future financial choices. This is especially the case when you are facing a credit check as part of pre-employment checking for a new job. Understanding the process and what employers and lenders are looking for should help deal with some of the myths around credit scoring.

Check Your Credit Report

The first step is always registering for a copy of your personal credit report. You can do this online for free through credit reference agencies like Experian and Equifax or via third-party providers like Clearscore and TotallyMoney. Once you’re signed up, you will receive updated reports and scores in by email, allowing you keep your eye out for any unexpected changes. When you get your credit report for the first time, look closely at all of the personal and financial details. These reports may not always be correct, so it’s essential to ensure the information on file about you is correct. Some items you’ll find in your report are:

• Personal information: Your name, date of birth, and address, including past addresses within the last six years.
• Financial associations, such as joint mortgages or shared loans you have in joint names with other people.
• Whether or not you are listed on the electoral roll as a voter at your address – if you are not, this will decrease your credit score dramatically.
• Details of your borrowing, including outstanding balances and payment history for accounts like mortgages, credit cards, store cards, personal loans, and overdrafts.
• Details about any County Court Judgments (CCJs), bankruptcies, and Individual Voluntary Arrangements (IVAs).

What Doesn’t Appear on A Credit Report – The Myths

Many people are unsure about what will appear on a credit report. These do not include any details about:

• Savings accounts.
• Salary, wages or who your employer is.
• Your criminal record.
• Parking tickets or driving licence points.
• Arrears on your council tax.
• Details of any payment holidays or Covid related payment freezes you’ve taken on mortgage or other loans.
• Student loans – whether you are in default or not.

There are other persistent myths about credit reports which are also unfounded. The biggest of these is probably that banks or other financial institutions have a “blacklist” of people who are blocked from all credit. Each lender will have their own rules about who to offer credit to. Similarly, institutions will not blacklist or bar whole streets, postcodes, or towns from getting credit. The only thing which will stop you from getting credit is your own credit history and record. If you have defaulted on credit agreements in the past or been consistently late in paying, financial lenders are going to be concerned that you will be a bad risk. Improve your credit record by keeping an eye on your credit report and correct any errors which you find on it. It might take time, but ensuring you always pay bills on time will eventually be reflected on your credit score.

Very few of us can afford to stroll into a dealer and pay for a new car with cash. Finance agreements are commonplace, and lenders always do a credit check before deciding on your car finance application. The credit report plays a significant role in their decision-making process, along with other checks such as verifying your identity and address. Credit reports give them lots of details about your credit history, allowing them to decide whether you are a good risk for finance – or not.

How Credit Scores Work

Every person in the UK aged 18 and above has credit score number representing their creditworthiness. Experian, Equifax, and TransUnion are the three main credit reference agencies used by lenders. While several companies offer credit scoring apps or websites, they rely on data from one of the three major agencies. Your credit score reflects your credit rating, usually on a scale of up to 1,000, with a higher score indicating better creditworthiness.

Checking Your Credit Score

The main credit scoring agencies —Equifax, Experian, and TransUnion—must provide you with a free copy of your credit report if you go direct to them. However, you can also opt for paid services from them which give you more information or more detailed access. You can also use third-party websites or apps like ClearScore and Credit Karma, as these use information taking directly from one of the main reference agencies.
By law, the main credit references must give you a copy of your credit report free of charge. They are allowed to charge for extra services such as credit improvement tips, but you don’t have to sign up for these services if you don’t want to.

Applying for Car Finance and Your Credit Score

When you apply for any form of finance, including a car loan, the lender runs a credit check. If you’re using one of those services marketed as finding out whether you’re likely to be accepted, this is a “soft check,” which doesn’t leave a mark on your credit. However, if you make a firm application for finance, the lender performs a “hard check,” which appears on your credit report. Making one application won’t go against you. Multiple applications may suggest desperation for credit, making you appear high-risk to lenders.

Factors Affecting Car Finance Credit Score

There are many factors which influence your credit score, whether for car finance or other loans. These include your borrowing history, late payments, financial difficulties, on-time repayments, and your credit-to-debt ratio. Being on the electoral register at your current address is one of the easiest things you can do to improve your credit record. Lenders will also want to see that you are managing your money responsibly by paying regularly every month, preferably by direct debit. Pay off any longstanding debts and deal with any county court judgements (CCJs). If your problem is that you have no credit history at all and therefore no information for the agency to make a judgement on, it can be useful to get a credit card with a low balance and pay it off in full each month.

In the job hunt process, putting together a stellar CV and preparing for interviews are undeniably important steps. However, employers are increasingly using additional measures like pre-employment credit checks as part of the hiring process. These checks are aimed at verifying your identity, checking the accuracy of your application details, and evaluating your suitability for the role. Employers might also check your social media profiles, verify your academic qualifications, contact your references, or run a criminal record check. One of the least understood of these pre-employment checks is the credit check.

What is a Credit Check?

A credit check looks into your financial history. These are typically used by financial institutions to when applying for loans but can also be used by employers. Most employers who use these checks are also operating in the financial services market, or employing people in roles where they have lots of access to cash.

Employers doing credit checks can only access data from public databases, such as CCJs and bankruptcies. They cannot access private information like your credit card history or financial associates. Additionally, they cannot view your credit score.

Why Do Employers Do Credit Checks?

Credit checks were once associated with financial sector positions, they have now become a routine part of recruitment across various industries. Employers generally conduct credit checks for two primary reasons. Firstly, they want to make sure you are who you say you are by cross-referencing the details you provided with those in your credit report. Secondly, they want to try to identify any patterns of financial mismanagement. This is done not only in roles giving access to money or accounts, but also many employers feel that a solid credit report or score shows that the employee acts responsibly and is organised.

Timing of Credit Checks

Employers choose when to do the credit check during the recruitment process. Most companies will do all the pre-employment checks after an offer has been made, and typically the offer will say “subject to pre-employment checking”. Employers must tell you what checks they are doing and get your permission. This sort of pre-employment credit check will not affect your credit score.

What the Employer Sees

Credit reports aren’t secret, and you have the right to request a copy of yours from any of the major credit referencing companies in the UK. There are websites or apps like ClearScore or Credit Karma which you can sign up for and both access your current report and track how it changes over time. Once you have your report, check it for accuracy as the agencies have an obligation to put right any mistakes. Deal with any old debt which you discover on your file and take advice from the apps and websites about what you can do to improve your credit score if it is not as good as it could be. Being able to explain to an employer the steps you are taking to improve matters can only go in your favour.

An Adverse Credit Check is a specific type of pre-employment screening that employers might choose to carry out on current workers or potential employees. Its purpose is to uncover any significant adverse credit history. These checks are important in the pre-employment screening process, especially in roles where employees will have access to cash, accounts, or valuable assets. Adverse Credit Checks can help deal with management concerns about staff fraud or dishonesty. An employee with a history of financial vulnerability or who is regularly spending way beyond their means may be more susceptible to bribery, or temptation of taking money from customers’ accounts.

What is Adverse Credit?

“Adverse credit” means looking at any history of late payments or non-payment in an individual’s credit report. Adverse credit information includes:

1. Individual Voluntary Arrangements (IVAs) – A formal agreement between an individual and their creditors. These are taken out when someone has a higher level of debt and struggles to pay it all back.
2. County Court Judgements (CCJs) – these are issued when a customer is taken to court by a company over an unpaid debt, or a payment issue which has been ongoing for several months or years.
3. Bankruptcy – this is the most serious form of adverse credit. Bankruptcy only happens when someone is in such serious financial difficult that the court steps in and takes charge of their finances for them.

Adverse Credit and Credit Score

An Adverse Credit Check is purely a pre-employment financial assessment is not concerned with the applicant’s credit score. The generated report is different to the credit report which is used by banks or credit card issuers when making lending decisions. It’s important to remember that employers are really not interested in when you took out a mobile phone contract and how much you are paying each month on your rent or mortgage. These adverse credit checks are really just looking for the most serious financial issues which might lead to concerns over your ability and suitability for the job you are under consideration for. Any good employer will be able to talk you through the process, explaining exactly what will be done, and what information they will be using to make their decision.

Getting An Adverse Credit Check

Most Adverse Credit Checks are completed within five minutes, so as a prospective employee you won’t be kept waiting for months for someone to make a decision. The employer can complete the checks online and will receive the results of the check by email or as a .pdf document which they can download. Often, employers will outsource all of their pre-employment checks to an external company. Remember also that the credit check is just part of the information which the employer will use to make their final choice of who to employ. If you are concerned that your credit check might go against you, then seek advice from a debt charity about what steps you can take to make yourself appear a better prospect as an employee.

Your credit score plays a really important role in your day-to-day finances. Your credit record affects your ability to access credit, including loans and credit cards, as well as the interest rates you’ll be charged. A strong credit score can save you a substantial amount of money, as you’ll be able to access the products and rates reserved for people who have proved that they are a good risk. If you have been turned down for credit, or are applying for a position which involves identity verification or a credit check, it’s a good idea to find out what is on your credit file, and work out what you can do to make your financial situation look more attractive.

Check Your Credit Report

The first step in improving your credit score is obtaining a copy of your credit report. You’re entitled to ask for one free report every year from each of the major credit agencies. (Equifax, Experian, and TransUnion). Scan each report for mistakes, such as accounts which don’t belong to you, or late payments that were actually made on time. If you notice any errors, lodge a dispute with the credit agency.

Payment History

Your payment history is the single most important factor affecting your credit score. Experts estimate that this alone accounts for 35% of your total score. Late payments stay on your credit report for up to seven years. Consider setting up automatic direct debit payments or use reminder apps on your phone to make sure you never miss a deadline.

Pay off Your Credit Cards

Your credit utilisation ratio looks at the amount of credit you’ve used compared to your credit limit. A high ratio can negatively impact your credit score, as it appears you are overly dependent on credit. Try to keep your ratio below 30% by either paying off balances or increasing your credit limits.

Don’t Close Dormant Accounts

Surprisingly, closing a credit card account can have negative effects on your credit score. It reduces your available credit and can increase the percentage of credit you are using, as discussed above. If you have an inactive credit card, it’s wise to keep it and use it every month or so to keep the account active.

Build Your Credit History

Many young people who are just starting out have a limited credit history. There is just not enough information about them for the agencies to come up with a solid credit score. Think about getting a credit card with a very low balance, which you then pay off every month in full. This will help prove to lenders that you can be trusted and will help you start to build your credit history.

Improving your credit score is not a quick fix but has many long-term benefits. As long as you manage your money responsibly, this will pay off eventually. Remember to regularly check your credit report and keep on top of making payments on time every month to avoid damaging your hard work.

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.

When you apply for a new credit card or mobile phone contract or try to get a bigger loan such as a mortgage, lenders want to examine your credit history. This process is also sometimes done when you apply for a position involving financial responsibility, such as in a bank or insurance company. A credit search includes assessing the total amount of credit extended to you and how you’ve managed your repayments. Lenders or employers will look at this information to see whether you are likely to be able to pay back any money they lend, or to see whether your financial situation could put you at risk of being tempted to steal or commit fraud.

What Information is Included in Your Credit Report?

Your credit report will have the following key pieces of information about you:

• Address details – both your current address information taken from the electoral roll, as well as any recent other addresses.
• Details of any credit agreements, such as loans, credit cards, mortgages, and overdrafts, including records of any missed or late payments. The report will also state who the credit is owed to, and the total amount of money owed.
• Legal information about debt and repayments, including county court judgments (CCJs), bankruptcies, and insolvencies.
• Financial associates, if applicable. This could be someone you’ve taken out a joint mortgage with or have a joint bank account with. Lenders may consider this other person’s financial behaviour when deciding about your credit application. Someone at the same address, who you have no financial links with, is not a “financial associate”.

What Information is Not Included in Your Report?

There are lots of myths and misconceptions about what information people can see when they run a credit check on you. Your credit report does not include information about your employment history, savings accounts, criminal record, medical history, ethnicity, religion, marital status, or political affiliation.

How do Lenders and Other Organisations Use a Credit Report?

Lenders take the information contained in your credit report to look at how you manage your finances. Each lender has their own criteria about who they will lend to, so they analyse your credit score along with other details you provide, such as your occupation and income, to decide whether you meet their criteria as a suitable candidate for lending. Their primary aim is to decide whether you are likely to pay back any money which they lend to you.

Organisations can only access your credit report only if they have a legitimate business reason to do so. Additionally, organisations may access certain aspects of your credit report such as your address history to verify your identity, which helps in fraud prevention. If you are being asked to undertake a credit check as part of a job application, your employer will have to get your consent first. Any credit check as part of the process for getting a new job is a soft check and won’t affect your credit score.

Everyone over the age of 18 in the UK has a credit score. This number represents of how appealing you might appear to potential lenders when applying for loans or a credit card or taking on a new contract for something like a mobile phone. A poor credit score will include anything that could put lenders off, such as a history of missed or late payments.

A Money CV

It often helps to think of a credit report as your financial CV. Applying for credit, whether a loan, overdraft, or mobile phone contract, is just like applying for a job. An employer wants to know about your work experience and qualifications, and a lender wants to know about your credit history through your credit report. A credit report sets out your money history over the past six years or so and provides information about whether:

• You have borrowed money in the past.
• How much you currently owe.
• If you have been paying back money on time.

Before applying for credit, or sending in your application for a new job which requires a credit check as part of the standard pre-employment checking, it’s wise to check your credit report yourself. This will minimise nasty surprises, just like you would update or proofread your CV and cover letter before sending a job application in.

Who Does Credit Checking?

There are three credit reference agencies in the UK which maintain your credit file. These are called Experian, Equifax, and TransUnion. All three do basically the same thing, and lenders will choose which one they want to work with. Although checking your file at just one credit agency is better than nothing, it’s advisable to check all of them. There is no charge for doing this, and lots of apps which can help you. The numerical credit score you see (ranging from 0 to 999, depending on the agency) is for your personal reference only, as lenders do not use the number itself. The credit score gives general information about your credit health, with a higher number indicating better creditworthiness.

What To Look for on a Credit Report and How to Improve Your Score

The main thing to check is the information recorded on your credit file. Make sure that personal details are accurate, and that you recognise all the accounts listed under your name. If you spot an error, ask the credit reference agency to fix it.

Improving your credit report and score takes time, especially if you’ve made past mistakes like missing payments. There are also several easy ways to improve your credit score, such as making sure you are registered to vote at your current address and avoiding making multiple credit applications. Higher credit scores often lead to lower interest rates, but other factors come into play as well. Each lender has their own rules about who they will lend to, so check out the sites which tell you whether you’re likely to be accepted before applying for a new credit card or mobile phone contract.

Rising costs mean that more of us than ever are struggling to make ends meet, and perhaps thinking about taking out a credit card or loan to pay for larger purchases. When you apply for any type of credit, the lender will assess how likely you are to be able to pay it back. This is called credit scoring, and in general terms, the higher your score, the greater your chances of being approved. It’s also easier than ever to check your own credit rating, using websites like Clear Score, or apps like Credit Karma. If you’re thinking of applying for a new line of credit, or are going for a position which requires credit checking through a third party, then here are some easy steps which you can take to improve your score.

Register to Vote

One of the basic checks which a bank will do is to make sure you live at the address stated on the credit application form, which they do by checking the electoral roll or register. There is no charge for having your name added to the list, and you can add yourself at any time by googling “register to vote” and following the steps on the government website.

Limit Your Applications

If you apply for lots of new credit in a short period, lenders can perceive you as desperate and will be concerned that you may not be able to pay it back. Take advantage of the eligibility checkers which will give a general indication of whether you are likely to be accepted for credit rather than doing hard application checks. Only make a hard application for credit which you know you are more likely to be accepted for.

Pay By Direct Debit

Lenders give higher scores to people who opt to pay their phone contracts, electricity bills oy gym memberships direct from their bank account rather than waiting for a bill to come in, and then paying. Setting up direct debits to cover this cost demonstrates you are financially reliable, and have the income needed to cover regular costs.

Correct Errors

Not everyone’s credit record will have mistakes on it, but if yours does, asking the credit reference agencies to remove the error can raise your score instantly. Look at any CCJs or defaults on your account as these can be challenged if you can prove that they were applied unfairly, perhaps because you’d moved house and never got the letter. You may have to approach the original lender or court to get any unfair default removed.

Joint Accounts

If you have joint accounts with someone who struggles to manage their finances or who has a very low credit score, this can affect you too. This applies whether you are living together or not. Separating out finances and showing that you personally are a better risk should improve your credit rating. The downside is that this might take some time and isn’t the instant win of other steps such as challenging errors.