Do Credit Enquiries in the UK Harm Your Credit Score? Here’s An Honest Answer.

Here is a press release from National Debt Help in the UK.

Your credit score can creep and reach into all aspects of your life.; from being able to rent an apartment, to buying a home, even onto securing certain types of jobs. Yet with credit more freely available than ever before, vast numbers of consumers struggle to manage their finances in a way that doesn’t tank their credit score.

Putting this into figures, one in three Britons are rejected top financial products because of poor credit, while 37% regularly use more than 30% of their available credit (30% is a figure chosen because it is thought to be the limit for a good credit score). However, interestingly those in their late 20s have poorer credit ratings than teenagers, so it may be that our younger generations are becoming more credit-savvy.

In this blog, we want to answer the question: do credit enquiries hurt your credit score?

Understanding the two forms of credit enquiries

When a company runs a credit check they will perform one of two searches – the first being a so-called ‘soft credit check’ and the other being a ‘hard credit check’. Let’s explore the differences between the two…

Soft Credit Inquiry

A soft credit inquiry is undertaken to perform a background check, and provides basic details such as addresses, date of birth and so on; this information is mostly used for the purpose of auditing.

A soft credit check could be made by a wide range of companies, including lenders, insurers, landlords, retailers, banks and even employers if you apply for a job that requires you act responsibly with your personal finances.

Soft credit checks DO NOT impact your credit rating, although they are recorded on your credit history.

In some instances, lenders will undertake a soft credit check prior to moving forwards with a full credit check.

Hard Credit Inquiry

A hard credit check provides lenders and other businesses with a full rundown of your credit history. This type of credit check will be used when applying for credit products such as credit cards, loans and mortgages.

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A hard credit check will leave a marker on your credit history. It’s important to understand that hard credit checks are undertaken even if you already use the business in question – such as applying for a loan with the bank that you hold a current account with. This form of credit search WILL harm your credit score if too many hard credit checks are undertaken in a short period of time.

For any business that is attempting to assess the risk of lending to you, a short burst of multiple credit applications may point to financial difficulties, and may also indicate that you are quickly ‘maxing’ your credit out.

Answering the question: do credit enquiries hurt your credit score?

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To provide you with an idea as to just how much hard credit checks can impact your score, it’s estimated that around 10% of your credit score is made up of inquiry history.

With this in mind, hard credit checks may only minimally hurt your credit history, although you do have to bear in mind that not all situations involve your credit being ‘read’ by a computer.

In the case of mortgages and some large loans, your credit report will be assessed by a human, who may place more weight on multiple credit checks within a short space of time.

Reading your credit report – Deciphering hard from soft searches

Different credit bureaus have different ways of signifying what type of search has been performed.

While hard credit checks should be limited where possible, there’s really no need to be concerned about their impact as long as you use credit responsibly, keep up with your repayments and manage your money well.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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