What is a credit check?
A credit check provides lending companies with information that helps them decide whether or not to offer you a loan. The data from the credit check will give lenders a better idea of your financial situation by looking at your credit history and how well you have paid other cards, loans, have been bankrupt or had a CCJ.
Loan companies will run a credit check on your account with data provided from credit reference agencies such as Equifax, Experian and CallCredit. Every time your apply for a loan product or make repayment, the information from the lenders is sent to the credit reference agencies. This means your credit score is constantly being updated in real-time to provide loan companies the most accurate data possible.
How do loans companies use credit checks?
When a loan company runs a credit check, they are presented with a credit rating or credit score and this gives a numerical representation of your current financial situation.
Lenders will use the information from credit checks to decide whether or not to give you a loan. By gaining insight into your credit history, lenders can assess your suitability for their product and how likely it is that you are going to meet repayments or default.
A credit check can show if a customer has a history of CCJs and bankruptcy and how suitable they are for a high cost loan. Equally, a credit check shows if an applicant has made numerous loan applications in a short space of time, suggesting that they are desperate for funds. The checks show what other forms of credit the customer has open and having too many open loans or credit cards will impact the final loan decision.
Overall, the credit reference checks not only tell the lender whether or not they should provide the loan to the customer but also what rate. Those customers with better credit ratings are more likely to receive better interest rates because they are low risk of default. This is compared to those with poor credit ratings who are likely to pay a higher interest rate because there is a greater chance of missing repayment. The way your credit score impacts the rate you pay is very common for mortgage loan applications and peer to peer lending.
Why do I need to check my credit rating?
It is important to check your credit rating because it regularly goes up and down based on your repayment history. Millions of people in the UK check their credit ratings on a daily basis for the following reasons:
To see why you’ve been declined: If you have been declined for a specific loan but you aren’t sure why, it could be due to your credit rating. You may find that you have a low score which is why you have not been granted the loans you were hoping for.
To improve your credit rating: If you discover that your credit rating is not as high as it should be and you are taking steps to improve your score, you can use a credit-checking tool to constantly check your progress. Some individuals need to improve their credit rating to be approved for certain loans, buy a property or increase their credit limit.
A lender might have reported something incorrectly: Upon checking your credit history, you may find that a lender or card company that you have worked with has reported data incorrect i.e a missed repayment. By checking through a credit reference agency, you are able to confirm the name of the company and get in touch.
Fraud: If you have suffered from fraud in the past, it may have impacted your credit score. This can happen, for example, if your cards were stolen and the fraudster went into your unauthorised overdraft. You will want to ensure that your credit score doesn’t suffer which is why is important to check regularly.
Receive alerts: Signing up with a credit reference agency will allow you receive alerts on your mobile phone and email every time a credit check is run on your account. This is useful to confirm which loans you have applied for but above all, you will be contacted for any suspicious behaviour on your account.
Free credit checks from Quiddi Compare
At Quiddi Compare, we provide a list of companies that offer free credit checks in the UK. Simply compare the different products in the table above and you can sign up to a free 30 day trial from the leading credit reference agencies in the country. If you are happy with the service, you can continue to use one of the credit check companies for a small monthly fee.
The free trial will allow you to get a feel of how companies have been carrying out credit checks on your account and you have the bonus of receiving alerts whenever a company is looking into your credit history. You will be able to see why you may have been declined for various loan applications and you can take the steps to improve your credit score and monitor the progress regularly.
We have created a simple, yet informative comparison table of products, offers and services which makes it easy for you to choose the right provider for you.