Credit Scores Explained

When you apply for a loan with Manchester Credit Union we will look at your credit report and credit history as it gives us information that allows us to make a decision on if we will lend to you or whether approving your application will be a risk to our business as you are unlikely to make the repayments. Part of this report is your credit score; this is a number that lets Lenders know about your creditworthiness. In general, the higher the number, the more confidence Lenders have that you’re keeping on top of your finances. Things like paying bills on time, being on the electoral roll and not have lots of debt are likely to increase your score and make Lenders more comfortable approving an application for credit.

When we receive your application, we look at your credit report by doing a hard search before we make a decision. But do you understand the difference between a hard search and soft search when applying for credit?

Each time you apply for any form of credit, the Lender will do a soft or hard search. A soft search only shows the Lender basic information such as name, address and date of birth and is used to confirm your identity and understand your financial situation. A soft search won’t affect your credit score but will stay on your credit file for 12 months.

If you are applying for a large amount of credit, it’s really important to use soft search eligibility checkers before you apply if they are available, as it will improve your chances of being accepted. The checker will state if the search affects your credit rating or not. If the checker says you are likely to be accepted, it will be ok to press ahead and apply which will lead to a hard search and likely subsequent approval.

A hard search is performed by lenders to give them a deeper understanding of your credit history and they will be able to see the last 6 years of your financial transactions. It will also allow lenders to see if there are markers on your report relating to defaults or CCJs.

Applying for credit for things like a loan, overdraft, credit card or mobile phone contract will mean you will be subject to a hard search. This will affect your credit score as the search will be visible to any other Lender that you might apply for credit from in the future and will also sit on your credit file for 12 months. If a Lender sees lots of recent hard searches on your account they may believe you are having financial difficulties and could reject your application

So to recap, before you apply for any type of credit:

• Check your score via your credit report which can be accessed from the likes of Experian, Equifax, CreditKarma or Clear Score
• If your score is low, make attempts to improve it before you apply using the tips listed above
• Use a soft search eligibility checker if it is available on the Lender’s website
• Try not to make multiple applications for credit as it could negatively affect your credit score