#5 Maintain your Credit Score
A credit check is what happens when someone checks your creditreport to get an idea of your creditworthiness. Here’s what you need to knowabout the two main types of credit checks.
Hard credit check
These happen when lenders perform a full credit check at the point of lending. They’ll have full visibility of everything on your credit file, andleave a “footprint” – meaning other checks in the future will see a record of this check.
Lenders typically run hard credit checks for things like mortgagees, mobile phone applications, loans, credit cards and car finance. Toomany hard credit checks will harm your credit score. Avoid hard checks unless you’re ready to purchase the product.
After taking out credit, it’s typical to see a decrease in your score. This makes perfect sense because you’ve just taken on debt (i.e. the credit), and you’ve not shown that you can afford to repay it. This makes you a higher risk for future credit applications so it’s reflected in a slightly lower score. The positives are that you’ve got an additional active account on your credit history. You’ll also be more likely to fail the affordability checks lenders have to perform. This is because you’ve not got an extra regular payment they’ll need to account for in your expenditure
Soft credit check
A relatively recent development, these checks only give an indication of your chances of getting credit. But the big advantage is they leave no footprint, saving you from piling up hard checks on your credit file if you’re shopping around.
Most comparison sites use a soft search to check the whole market at once. They send your details to one or more third parties who compare your soft search results against people who have successfully borrowed from various lenders. Your chances of being accepted are usually given as a percentage or a mark out of ten. Some lenders will even pre-approve you based on this soft search.
One thing to note is that you’ll be able to see the soft searches which have been performed on you, in your credit report. But don’t worry these aren’t shared with lenders so doesn’t impact your chance of approval.
To protect your credit history, always try and use a soft credit check before making your final application.
What to do if you’re declined
If you are declined, then don’t keep applying for credit. You riskdamaging your credit file further. Examine your credit report to determine whatcaused your application to be declined. By addressing the source of the problem, you can start fixing this and avoid such issues in the future.
Don’t apply for credit just for the sake of it.
A hard credit check will have an impact on your credit score for anywhere between 3-6 months. So don’t apply for credit unless you have the intention of takingit out.
You can check your eligibility using some of the soft credit check tools, find outhow to do this below.
Task #7 Explore your options.
It’s important to have an understanding of where you sit in the market, what is the cost of credit you’re able to get at your current credit score. So you can workout whether this is something you need to improve.
To check without impacting your credit score we recommend using a comparison site such as Clearscore (where you checked your Equifax score in Lesson 1). They use a softsearch to compile the comparison table, meaning there’s no impact on your credit score unless you click out to a lenders website.
You can compare the APR’s you were approved for against the cheapest in the market, to understand how much you could save by improving your credit score further.
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