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Do You Need a Credit Check During a Loan Application?

Money Savings Advice Do I need a credit check for a loan

When you apply for a loan, most lenders will look at your credit file. The credit check they make, and your credit score, will affect your chance of approval. There are just a few options for loans without credit checks.

Do I Need a Credit Check to Get a Loan?

You will require a credit check to apply for a loan. Most lenders will offer varying interest rates depending on your credit score, and if you have a poor credit history you may be rejected outright, or you may be asked for a guarantor.

Your credit score is an important tool in the loan application process. A good credit score opens doors, improving your chance of approval. With a bad credit score, your options are going to be limited. Applying for a loan can be particularly scary if you know that your credit rating’s poor.

Aside from the feeling that you’re being judged, you’ll be waiting for a negative response. Understandably, many people want to apply for loans without credit checks.

Continue reading to get all the details about your credit score and how it impacts a loan application.

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Loans: All About Your Credit Score

Your credit score is a numerical figure that shows what you’re like as a borrower. Your credit score improves as you pay your debts and gets worse if you start missing payments.

If you’ve always paid your monthly mobile phone bill, that’s a good sign on your credit file. If you make at least minimum credit card payments, that’s another good thing. If you’ve missed a loan payment or Buy Now, Pay Later deadline, a mark will be left on your credit file.

Looking at your credit score, lenders can build a basic picture of what you’re like with money. Lenders have their own criteria, so some may approve borrowers with lower credit scores. Lenders don’t always look for the best credit scores, either.

You’re often more likely to be approved for loans if your credit score is just above average. An average credit score shows that you keep up with your debts but might have missed one or two payments. For a lender, a few missed payments are a potential goldmine.

You don’t have just one credit file or just one credit score. There are three credit reference agencies all in charge of their own records. These agencies are Equifax, Experian and TransUnion.

Different lenders will look at different records, and though they’ll be roughly similar those small discrepancies can make a difference to your chance of approval.

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Loans: Credit Score Averages

Each of the agencies has a different scoring system.

Equifax ScoreRating
0 – 279Very poor
280 – 379Poor
380 – 419Fair
420 – 465Good
466 – 700Excellent
Get your free Equifax credit report: Equifax

The average Equifax customer score is 380, only just in the ‘Fair’ band.

Experian ScoreRating
0 – 560Very Poor
561 – 720Poor
721 – 880Fair
881 – 960Good
961 – 999Excellent
Get your free Experian credit report: Experian

The average Experian customer score is 759, which sits within the ‘Fair’ band.

TransUnion ScoreRating
0 – 550Very Poor
551 – 565Poor
566 – 603Fair
604 – 627Good
628 – 710Excellent
Get your TransUnion Credit report: TransUnion

TransUnion hasn’t announced an average for the UK, but they have done a breakdown by region.  The highest is Kingston-upon-Thames at 547 (Poor) and the lowest is Cleveland at 513 (Very Poor). Full credit score map

Applying for a Loan

When you apply for a loan, lenders consider all the information you provide. In most cases, they make their decision with just a few financial details.

Lenders want to know about your income and expenditure, to check that the loan is affordable. You should be honest about these numbers, so lenders can make sure that they’re offering a loan with repayments that you can keep up with.

Lenders will look to your credit score to see how you’ve coped in the past. A good credit score shows a trustworthy borrower, whilst a bad score suggests you’ll miss your payments.

In some cases, lenders will offer an instant decision. Computers run through the details you’ve provided, checking credit scores automatically, then use the lender’s algorithm to check that you meet the criteria. You’ll get an instant ‘yes’ or ‘no’, based only on the numbers you’ve provided.

The more information a lender asks for, the more personalised decisions become. You may be offered loans for home improvements but not approved if the money’s for a holiday.

If you really don’t want lenders to run credit checks, you may have some luck with a Credit Union. Credit Unions will often lend to their members without running any kind of credit check, though they will want to delve deeper into details to make sure that the loan is affordable.

How to Get a Loan With Bad Credit

No credit check personal loans are available, but they won’t be the easiest to find. Lenders take risks when they let you borrow money, and most want to see evidence that you won’t default on your loan.

If you’ve been wondering ‘Can I get a loan with bad credit?’, you don’t necessarily need to find a lender that doesn’t check your credit file at all. Many lenders will approve applications even if you have a poor credit score.

If you can’t get a loan with bad credit, consider finding a loan guarantor or applying for secured loans instead. Secured loans, including logbook loans, will increase your chances of approval.

With a guarantor to back your loan, or something like your car to secure it, lenders know that they’ve got more chance of getting their money back.

How to Get a Loan With No Credit

It’s very rare for UK adults to have a completely blank credit file. If your credit file’s looking a bit slim, this can affect your chances of approval.

You might have more success with loan applications if you start to build your credit score. You can look at credit cards, use them for your groceries and pay them off straight away. This shows that you can manage your money, using just small amounts of debt.

A mobile phone contract can also have an impact on your credit score.

Once you’ve improved your credit score, more borrowing options are available. Until then, you’ll have to look for loans for bad credit.

Applying for Lots of Loans

When you apply for a loan, a mark can be left on your credit file. This mark can bring down your credit score.

Applying for lots of loans within a short time period suggests that you’re struggling financially. It might also suggest that you’ve recently borrowed a lot of money at once, since lenders don’t report whether your applications were approved or rejected.

If your loan applications aren’t approved, subsequent ones will also be less likely to go well. Each lender will see the marks left by others and will know that you’re in desperate need of money.

Some lenders will do a soft search of your credit file, to see if they’re likely to approve your application before they take the process any further. If your chances of approval are high, they’ll then do a hard search before they make their final decision. Soft searches don’t leave the same marks on your file, so you can do multiple soft searches without harming your chances of approval.

If you’ve left a mark on your credit file, it’s harder to get a new loan. You’ll need to take a break for a couple of months and keep on top of your existing commitments.

By keeping up with Direct Debit payments and paying your bills on time, you’ll soon erase the damage caused by these credit checks.

Loans: Improving Your Credit Score

Improving your credit score is the best thing you can do to boost your chances of success. If you don’t need a loan straight away, it’s often better to work on your credit score than apply for bad credit loans.

With so few lenders offering no credit check loans, and with those that do taking big risks that should make you wary to borrow, it’s often better to look at alternatives than to take your chances on a lender you’ve not heard of.

Quick Loan FAQs

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How Can Money Savings Advice Help You With Getting a Loan?

Here at Money Savings Advice, we have partnered with some of the UK’s leading loan broker companies. They have already helped thousands of people get the best loan that suits their needs, and they can do the same for you.

Choosing an independent loan broker means they won’t proceed with an application unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these loan brokers who can help you get a loan, then click on the below and answer the very simple questions.

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

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