Yes, you can check eligibility for a loan without hurting your credit score. This is possible when soft credit checks are performed.
Understanding credit checks
When you apply for a loan, responsible lenders are obligated to perform affordability checks. They run either soft inquiries or hard inquiries. Soft inquiries are made to give you a quote, so you can have an idea of estimated interest rates and repayment schedules at the time of comparing loan options.
However, when you pick a lender to apply for a loan formally, hard inquiries are run. Unlike soft searches, a hard credit check involves a thorough examination of your credit report to understand the repayment risk, and therefore interest rates offered at this stage might differ from the pre-qualification offers.
Both soft and hard inquiries are recorded on your credit report, but the former does not affect your credit score at all because they are not visible to lenders. All FCA-approved lenders are under an obligation to run affordability checks, but many start with soft searches.
Soft vs hard checks
| Aspects | Soft checks | Hard checks |
| Visible to other lenders | No | Yes |
| Affects credit score | No | Yes |
| Purpose | Eligibility check | Formal application |
| Rejection impact | None | Yes (if many inquiries) |
Can you get a loan approved with soft checks?
A responsible lender cannot approve your loan application without performing hard credit checks. Even if you apply for a small emergency loan, hard credit checks will be performed to know your past payment behaviour. Soft inquiries are part of the eligibility check. Even if you manage to get an initial-stage approval offer, it does not insinuate that you will get a loan approved.
An initial-stage approval is made based on the financial details you provide in the application form, and the approval decision is made after perusing your credit score, payslips and bank statements.
Is it possible to check eligibility for all loans?
No. The role of soft checks is important when you are to take out personal loans and large instalment loans such as car loans and mortgages. Loans with soft credit checks in the UK do not include short-term high-cost debts.
If you are looking to take out small emergency loans that are repaid in a lump sum, the decision is made quickly. Since the priority is speed, pre-qualification offers (soft searches) are not made. These loans have been designed to fund urgent expenses, and therefore lenders straightaway move to a hard credit check to ensure on-time repayments.
Another reason why these loans do not meet the criteria for soft searches is that the loan amount is quite small. These loans vary between £100 and £1,000. Since the loan amount is a paltry sum, they would prefer to make the lending decision faster rather than being involved in pre-approval.
Ways to improve eligibility before applying for a loan
Here are some practical ways to improve eligibility before applying for a loan:
- Register on the electoral roll
It is vital to be registered on the electoral roll as lenders use it to verify your identity and address. Make sure that you are registered at your current address. It usually takes 30 days.
- Reduce your credit utilisation ratio
A credit utilization ratio should not be more than 30%. If your credit limit is £1,000, you should not use more than £300 at a time. Make sure to repay the balance on time. Try to pay off the balance before the statement closing date.
- Check credit report for errors
Get your credit report from all credit reference agencies and watch out for errors and inaccurate accounts. You might be a victim of identity theft. Dispute those errors. Credit bureaus take at least a month to fix them.
- Reduce your debt-to-income ratio
If you already owe too much debt, lenders will be skeptical about your repayment capacity. They will most likely turn down your application if debt exceeds 40% of your income.
The bottom line
You can check eligibility for a loan without hurting your credit score. Lenders make initial-stage offers by running soft inquiries. They do not get recorded on your credit report, but they are not visible to loan companies.
However, it is vital to understand that pre-qualification offers with soft inquiries are made when you want to compare loan offers to save money on interest payments. This is generally applicable only to large loans to be paid down over an extended period.
Small emergency loans prioritise speed, so lenders directly move to hard checks to make their decision.
FAQs
- What are the risks of no pre-qualification?
If possible, you should always try to get a pre-qualification letter, because otherwise there is a risk of multiple rejections or ending up with an expensive loan offer.
- Can I know interest rates before a hard credit check?
Yes, many lenders may provide you with a personalised quote after a soft search, showing the likely APR and repayment terms. Still, the final quote is confirmed only after running a hard credit check, which may most likely differ from the pre-qualification quote.
- Do loans for bad credit with no guarantor come with soft credit checks?
No, loans for bad credit with no guarantor from a direct lender do not come with soft credit checks if the borrowing amount is less than £1,000. If you are looking to borrow a larger amount, you can get prequalifying offers through soft inquiries.
- Do soft checks guarantee approval?
No, soft credit checks only show eligibility. Even if you receive a prequalifying offer, it does not guarantee that you will receive approval from a lender.
- Do soft credit checks include income verification?
Not usually. Income verification happens later during the hard check as part of affordability assessment.
- How long do soft inquiries remain on your credit file?
Soft inquiries remain on your credit report for one year and do not affect your credit score.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
