Car finance: what is a hard search?

Confused by the difference between a 'hard search' and a 'soft search'? When applying for car finance, it pays to know the difference

John Evans
Sep 30, 2020

It sounds like a desperate hunt for that elusive piece of jewellery lost down the back of the sofa but a ‘hard search’ is a type of credit check that will show in your credit file. A credit file is the record that lenders such as banks and finance companies refer to when deciding whether to lend you money and if they do, at what interest rate.

This differs from a 'soft search' that merely gives you an indication of whether you're likely to be approved for finance and potentially what interest rate you may be eligible for, but doesn't leave a trace on your credit report. Read on to discover more and click on the link below to get a feel for your likelihood of being approved.

What is my credit report?

Every time you take out a contract such as phone contract or a mortgage, or sign up for a credit card, borrow money, go overdrawn or have a county court judgement awarded against you, a record is left on your credit report or credit history. This is maintained by four credit reference agencies: Equifax, Experian, TransUnion and Crediva.

Each agency expresses the quality of your credit history as a number, also called a credit rating. Your rating falls into one of up to five bands, labelled from very poor to excellent. Each agency groups its bands differently but the end result is the same, since these determine your eligibility for credit.

This rating is also useful to lenders because it frees them up to concentrate on asking you important questions about things such as your income and outgoings, outstanding student loans, and arrears or fines not on your record. This allows them to get a good idea of you previous financial behaviour and your current financial position and ability to pay.

Who uses my credit report and rating?

Lenders refer to your credit report when deciding whether to lend you money and on what terms. The better your financial history and current financial situation, the less interest they're likely to charge you, which in turn leads to lower monthly payments than would otherwise be available.

It’s that important and the reason you can’t afford to take any chances with your finances, since your report can mean not only the difference between getting that loan you need or not but also whether you can afford the interest rate offered.

What can put my credit report and rating at risk?

Defaulting on a loan - that is failing to make payments, or failing to make them on time - breaking a contract, having a county court judgement for not paying a fine, for example - all can put your credit rating at risk.

Something else that can put it at risk is making a credit application. Or more accurately, making multiple applications for finance in a particularly short space of time.

How can a credit application affect my ability to borrow money?

You’d think there was nothing risky about applying for credit. After all, it’s just an enquiry and the lender stands to gain your business, so it should be in their interests, too.

However, there are credit applications and there are credit applications. One kind is less serious than the other and only requires what is called a soft search. This is a preliminary or eligibility check you can carry out that allows you to see whether you might qualify for a loan or a finance contract.

You answer a few simple questions and that’s it. Your responses are taken at face value and not checked against your record, but assuming you’ve been honest, you should get an answer that reflects your chances of getting a loan, at which point you can proceed to a formal application. Crucially, this soft check is not recorded on your credit file.

That's not the case with a hard search, which is made if you complete a formal application. This is more serious and in depth and is recorded on your record, meaning that lenders can see that you've applied for finance.

Why is having a hard search recorded on my credit file an issue?

This can be an issue as, to a credit reference agency, a hard search represents a loan application. It suggests you’re borrowing money - and therefore less able to pay back an additional loan - and this can reduce your credit rating by up to 10 points.

That’s fine if the initial search and application results in you taking out a loan but shop around and trigger another hard search or multiple ones and to the reference agencies it looks as though you are taking out multiple loans, perhaps because you’re struggling to make payments on the existing ones.

Immediately, your credit rating is lowered further still to the point that you may find it difficult or even impossible to borrow money. Six hard searches in quick succession is considered too many by lenders, since research has shown that people who have triggered them are eight times more likely to file for bankruptcy.

When is a hard search made?

It’s not only loan applications that trigger hard searches. A mortgage application does, as also does a credit card application. In addition, a hard search might simply be triggered by a new phone or internet contract.

That means that when getting quotes for any of these, it's best to understand whether what you're doing will result in a soft search or a hard search, as it could affect your ability to get credit.

When is it OK to have a hard search made?

Only when you are sure you can afford the loan, that you really need it and that the advertised interest rate and terms and conditions are competitive, should you make a formal loan application, which will trigger a hard search.

If you're still shopping around or not sure whether you really need that finance, it's best to stick to soft searches.

How long is a hard search recorded on my file and how can I reduce its effects?

Depending on your credit record, a hard search can stay on your file for up to 12 months. However, as long as in all other respects your record continues to show you’re a responsible borrower, its impact will decline fairly quickly and your credit rating will start to return to where it was.

How can I avoid making a hard search?

Unfortunately, when making a loan application, there’s no avoiding making a hard search, so postpone making one if all you want to do is find out whether your lender or phone supplier, for example, might accept you.

For this purpose you should use a soft search such as an eligibility checker that does not appear on your credit record. This gives you an idea of the best value option that you should be eligible for, without potentially damaging your credit rating.

Another way to check your credit status and ability to borrow money without compromising your credit record or rating with a hard search is to check your credit record yourself, which you can do through a company such as ClearScore.

This shows you which credit band you're in, so you can get a feel for whether you have a higher score and are likely to have a good choice of low-interest options, or have a worse score and may want to try to improve your score before applying out finance.

How else can I protect my credit record?

If you must make loan applications, try to space them out every few months. Plan your loans and spending to make this possible, so you don't make many applications in a short space of time.

Everyone is entitled to see their credit record and to check it for errors which you can get corrected. Registering with a service such as ClearScore will enable you to do this.

Make sure you continue to meet all debt repayments and avoid getting into arrears, when a county court judgement may be awarded against you, as this can damage your credit score and your chances of taking out credit in future. If you haven’t already done so, make sure you’re registered on the electoral roll - so you're eligible to vote - which is proof of a settled address and makes you more appealing to lenders.

Avoid getting into financial difficulties by only borrowing within your means. You may be in a sticky financial position now, but taking out credit to pay off existing debts is likely to spiral into more debt - as additional interest is being added on top - so try to address your financial issues as soon as possible to give yourself the best chance of improving your situation.


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