Credit search

Definition

Also known as a credit check, a credit search is when a finance provider contacts a credit reference agency to examine a potential customer’s financial background, to assess how much of a risk it is to lend to the customer.

What is involved in a credit search? 

A credit search starts with the finance provider contacting a credit reference agency to carry out a check of your financial history. Credit reference agencies are companies that store information on consumer’s financial history, including any previous finance applications, missed payments and defaults. 

When a credit search is carried out, the credit reference agency will look at the current state of your credit file and give you a score based on what’s recorded there. This score translates to a credit rating, ranging from excellent, good, fair, poor and bad. The rating provided will tell the finance provider if you are a risk to lend to or not. If they consider you a ‘risk’, then you will likely be offered less money to lend and/or have to pay a higher rate of interest. If you have an excellent or good rating, then you can be lended more money at a lower rate of interest.

Can I conduct my own credit search?

You can check your credit score by contacting the credit reference agencies directly. There are many different ones to choose from, who all get their information from the same sources. While they each have their own scoring system, you should be able to translate the score into a credit rating, giving you an idea of what sort of offer you will receive from a finance provider.

Are there any potential issues with a credit search?

Unless the company is carrying out what is known as a ‘soft credit search’, every credit search carried out on your file is also recorded. So, over time, every time you have applied for a finance agreement will appear on your credit file. This can cause concern to a finance provider. If they see that you have been applying for lots of different finance packages, it may make it seem that you are desperate for credit.

If you are desperate for credit, it could mean you are in some sort of financial difficulty that is not recorded in your credit file. This can lead a finance provider to consider you more of a risk than you actually are, and leave you with a more expensive package than if you had been more cautious with finance applications.

What’s a soft credit search?

A soft credit search is similar to a credit search in that it examines your file to look at how much of a risk you would be to lend money to. But unlike a normal credit search, this is not recorded on your file. This means that you can use a soft credit search to get an accurate quote on what sort of finance package you qualify for, and then carry out a full credit search when you decide to go through with the finance application.

You should ask a finance provider if they can do a soft credit search to ensure you aren’t negatively affecting your file with your application.