How to apply for a loan or credit card without it affecting your credit rating

Written by Editorial Team
Last updated: 22nd August 2019

Are you concerned about calling in quotes from credit card or loan providers because the applications will show up on your credit rating as a black mark against you?

It’s a reasonable concern. Records of applications make up about 10 percent of your credit rating, so having a clutch of them showing on your record can count against you.

But what else can you do? You want to shop around for the best deal, but you have to fill out an application form for each company to find out what rates they’ll offer you.

Good news. With some credit card companies and loan providers it’s now possible to check whether your application will be accepted before you fill out the application. They do a “soft search” of your credit viability which doesn’t affect your credit rating.

Start by checking your credit rating

You need to know if you’ve got anything to worry about. You can access your own credit record from a  UK credit rating checking agency. 

You usually have a free trial period before paying a monthly fee. Your own checks on your credit rating don’t show up on your score.

How does looking for a loan affect my credit record?

Just doing an online search for lenders doesn’t affect your credit rating. But it’s not going to be particularly helpful to you because the rates quoted will only be “indicative”.

The rate you will actually be offered will depend on a lender’s judgement of whether you’ll make payments on time, or if you might default on the loan. Many lenders only show the actual annual “product” / “tier” / “rate” you’ll be offered after completing a full credit check, which you will have authorised when you fill out an application with them.

Credit applications are recorded on your credit report for 12 months. Other lenders can see them and will know that you applied for credit (and whether you were accepted). If you have a lot of recent applications on your record it can look as though you need to live off credit, and can be counted against you.

There are lenders who won’t check your credit history at all

The no-credit-check lenders, or “payday lenders” will be assuming that you’ve come to them because you’ve got a bad credit rating (otherwise you would go to a cheaper lender).

They’re prepared to lend to you because they actually make more money out of you being a poor credit risk: they’ll hit you with punitive additional charges if you’re late on a payment.

Or they may offer you a “title loan” or a “logbook loan” against your car: if you default on the loan, they get your car.

All these no-credit-check lenders are to be avoided at all costs (because a lot of costs is what it will end up being for you).

Find a lender who will just do a soft check

There are other lenders who will do pre-checks on your eligibility by just doing what’s called a soft check on your credit record. Only you can see the history of soft checks on your credit record – not other lenders.

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These include ZopaPost Office Money, and the AA, as well as some high-street banks for loan applicants who are already customers, such as NatWest and Royal Bank of Scotland.

Soft checks, hard checks, and footprints on your credit rating

A soft check

This may also be referred to as:

  • a soft search
  • a background check
  • a pre-application check
  • a quotation search
  • an eligibility check

It’s a preliminary search by a lender:

  • to check your identity
  • when a lender wants to show you your eligibility for a new financial product
  • it can be done without your permission
  • your own searches of your report are soft searches

You can have unlimited soft searches without it affecting your credit score:

  • soft checks are recorded on your credit history for 12 months
  • only you can see them
  • they’re not visible to prospective lenders
A hard check

This is when a potential creditor does a full review of your credit rating. They need to have your permission to do this, but you may give implied permission to carry out a check by applying for a loan or opening an account, such as with a mobile phone provider or a mail order company.

A landlord or an employer must get your express consent to check your credit record. A debt collection agency “inherits” the permission to check your credit report that you gave to the original lender.

When a potential creditor “pulls your credit” (checks your rating) it may also be referred to as:

  • a hard pull
  • a full credit check
  • a hard inquiry
A footprint

This is the record of lenders having checked your rating, which are visible to other lenders (and to you). They don’t have a negative impact on your credit score, but they may nonetheless affect your chances of being approved for credit.

There are hard and soft footprints!

  • A “hard” footprint is left by a creditor checking your application for a loan or credit: it stays on your file for 12 months and then disappears.
  • A check by a debt collection company leaves a footprint on your record for 2 years.
  • A loan stays on your account for 6 years – whether you’ve repaid it in full or defaulted.
  • A “soft” footprint (such as a search of your partner or spouse’s credit record if you have a joint bank account) disappears immediately.
  • You can access a record of the soft searches carried out on your credit report over the last 2 years.

What affects my credit rating: making an application for credit, or having an application refused?

Whether your application is approved or denied doesn’t directly affect your credit score. The number of applications showing up in your credit history is more important.

If you’ve recently been approved for a new store credit card, the fact that you haven’t built up evidence of your ability to repay it can count against you.

How many credit searches is too many?

It depends who you ask. One UK lender states that it’s normal to have around 12 searches on your file per year. A US credit scoring agency says that more than about four hard credit searches on your report can make it difficult applying for a new credit card.

Don’t panic if your credit score dips when you’ve applied for a new credit card. If you start using your new product responsibly then your credit score should recover relatively quickly.

If you have too few searches, you may not have enough financial history for lenders to feel confident you can manage credit (common for young people who haven’t built up a credit history).

If a number of hard searches are carried out on your report in a short space of time, it may look like you’re desperate for credit. Or your personal details may have been stolen and criminals may be applying for credit in your name.

A poor credit rating doesn’t mean you won’t get a loan

You may get charged a slightly higher rate. But go to lenders who will do a soft credit check first, to see if you will be eligble for a loan with them, before you make a full application which will go on your credit rating.

And read more about How can I improve my credit score?