What is a credit check?
When it comes to the business end of a finance application, you'll go through something called a 'credit check'.
This is the step of your application where you'll find out if you've been fully accepted for credit, and whether you're able to proceed with setting up the agreement.
'Soft Search' vs 'Hard Search'
To start with, it's important to know that they are two different types of credit search: Soft & Hard.
A Soft Search will:
- Give a general understanding of your credit history
- Give a picture of your ability to manage loan repayments
- Not affect your credit rating
A great example of a Soft Search is our online eligibility form.
If the soft check looks favorable, then you can agree to be put through a Hard Search to continue the financing process.
Learn More About Car Finance Eligibility
A Hard Search will:
- Perform a full, comprehensive check of your credit history
- Be the decision maker on whether you're ultimately accepted for finance
- Appear on your credit history (regardless of the outcome)
The hard search process might negatively impact your credit rating, therefore you should always give consent before proceeding.
Meanwhile, several hard checks in a short amount of time raises an alarm for lenders, as it shows potential desperation for credit.
What shows up on a credit check when buying a car?
Your credit history consists of all of your previous credit accounts, including loans, credit cards, mortgages, and so on, together with your usage patterns.
In addition, it will also contain all histories of any such aspects as CCJs, IVAs, or defaults.
When a hard credit check is performed, all such factors are laid bare for the lender to see.
You'll also be able to see the same information when you check your credit score, as well as any previous credit searches.
What will be checked when applying for car finance?
A car finance credit check considers such factors as:
Your registered address - If you’re registered on the electoral roll, your address will show up on your credit report, plus any prior addresses in the last six years. Lenders review the data to determine how stable your circumstances are. Relocating frequently in a short period of time may be cause for concern.
Your payment patterns - Your credit report will indicate if you have ever missed a payment or if you consistently make the minimum, on-time, and full repayments.
What you currently owe - Lenders will be keen to know any current debts you may have, including your mortgage, credit cards, or store cars. If your current debts are already close to overlapping with your income, then lenders may not want to allow you to borrow more money.
Public and court records - Any CCJs, IVAs, or bankruptcy declarations will appear on your credit record. It will also display how any arrangements are managed. The longer they have been fulfilled, the more it will work in your favour. It's also important to know that any ties you have with others who have had troblesome credit histories may affect you too.
Your history of applications - Lenders can see each time a hard search has been performed against your profile. With this in mind, they will be wary of anyone applying for credit too many times in too short a time, usually a three-to-six-month period.