One of the most popular search terms on the internet used by people wanting access to finance is “no credit check loan”. Why is that?
Because many people are afraid that what’s on their credit report is going to stop a short term loan provider from lending them money. There are a lot of misconceptions around credit reports and how they’re used.
In this article, Moneypod separates the facts from the fiction about credit reports, bad credit checks and short term loans.
What is a credit report?
A credit report is a big and long file held about you and your financial history. Everyone in the UK has three different credit reports done by four different companies – Callcredit, Crediva, Equifax, and Experian.
Think about the bills you pay each month – your mortgage (or rent), your council tax, your Sky bill, your mobile phone bill, your broadband bill, and so on.
Every time you make a payment, the company you make the payment to tells Callcredit, Crediva, Equifax, and Experian. They then update your credit report with that information. Likewise, if you miss a payment, that information is passed on too.
The same goes for credit card companies, loan providers, and more. Think of your credit report like a biography on you and how well you handle meeting your commitments to make payments on full and in time.
Your credit report also includes information on companies which have performed a credit check on you.
On top of that, Callcredit, Crediva, Equifax, and Experian check the courts every week. If someone has a county court judgement or a default made against them, that goes on your credit report. Likewise, when someone is declared bankrupt or they agree to an IVA, that’s recorded too.
What’s difference between credit rating, history and score?
Your credit history is what’s on your credit report – information going back over the last six years about your financial history.
Your credit score or your credit rating is a number that they place on your credit report. That number tells companies searching your credit history what, in Callcredit, Crediva, Equifax, and Experian’s opinions, they think of how you handle your finances.
For Equifax, the average credit score or credit rating is 380 – the maximum credit score or credit rating anyone can achieve is 700. Each credit reference agency has their own scoring system.
Callcredit, Crediva, Equifax, and Experian don’t tell short term loan providers or any other company whether they should offer you a loan or open an account for you.
That’s a decision for each company. We’ll look at how the information on your credit file and your credit score or credit rating is used later on in this article.
How do I check my credit rating?
Callcredit, Crediva, Equifax, and Experian are legally obliged to release all the information they have about you if you make a request to see it.
You have to pay £2 to the company you’re making the request from. The Information Commissioner’s Office provides guidance on how you can do that – click here for more.
How do companies use what’s on my credit report?
Every company has their own internal guidelines on how to use both the information stored about you on a credit report and your credit score or rating.
That’s why some companies might say “yes” to you when you apply to open an account but others might say “no”.
How do short term loan companies use what’s on my credit report?
The same as every other company – they have their own guidelines.
Think about a High Street bank. Because they are very risk averse and don’t like taking chances, they will generally only offer loans and credit cards to people with high credit scores and who do their banking with them.
Short-term loan providers are very different. They tend to be a lot more open-minded about people and, for them, what’s on your credit file is just one of many different things they consider.
Each short-term loan provider has a “profile” – that’s the type of person they feel most comfortable about lending money to. Your credit report and your credit score will be an important factor but they’re likely to be just as or even more interested in your life today – how much you’re earning, how much you spend every month, and how much could you afford to pay back every month comfortably without causing you hardship.
Please bear in mind that, if you read somewhere on the internet that a company is doing a “no credit check loan”, this is against the guidelines laid down by the Financial Conduct Authority (FCA). Moneypod is an FCA-approved broker and our panel of lenders are all reputable, established FCA-approved short-term loan providers.
Once we have your details, we do something called a soft credit check. In addition to the information you give us on your application form, what we find out from the soft credit check gives us enough information to know which lender’s profile you’re closest to. When we pass your details onto the lender we think you are perfect for, they’ll do a full credit check which will leave a footprint on your report.
It’s better to do it this way, many in the finance industry would argue. Too many footprints on your credit report makes a potential short-term lender think all the other companies are saying “no” to you. By using a soft search (which leaves no footprint) and only having one full search looks a lot better and will work out in your favour.
Want Moneypod to match you with the lender whose profile you fit the best? Please click for our short-term loan application.