If you have poor credit but you need money fast, it can be tempting to approach lenders offering loans with ‘no credit checks’because you think that all of the other lenders who carry credit checks will turn you down.
But are “no credit check loans” the real deal? The Loan Princess team investigates.
What is a credit check?
A credit report is sent to a loan company whenever you make an application for finance – this is sometimes known as a credit check. They use a credit report as part of their decision making process on whether to lend you money or not. Your credit report is like a diary showing your financial history throughout the last six years.
Credit checks can be either hard or soft and the type of credit check which a lender carries out can potentially have a negative impact on any future loan applications.
Hard credit checks are in-depth searches into your credit history. When a lender runs a hard credit check on you, this leaves a footprint on your credit file. This footprint can then be seen by all future lenders that carry out credit searches on you in the future.
When you have too many credit checks or the credit checks are too close together in time, this can reflect badly on you as a borrower. This suggests, rightly or wrongly, to loan companies that you are unable to manage your credit effectively.
A soft credit check, on the other hand, is a general overview of your credit report. These do not show up on future searches meaning that no lender you apply to in the future will know and they can’t mark you down for it.
While lenders must perform a hard credit check when you officially apply for a loan through them, loan brokers can use a soft credit check to match you up with the loan providers most likely to accept you to protect your credit score when they make multiple applications on your behalf.
What’s on a credit report?
All credit reports contain financial and personal information on you. First off, your report includes personally-identifying information like your name, your address, how long you’ve been there, and who lives there with you.
It will then cover all past and present financial credit agreements you have, including all:
- Credit cards
- Bank cards
- Auto loans
Your credit report keeps records when a credit account was opened, your credit limit or the loan amount, and any late or missed payments. How well you stick to repayment plans is extremely important to getting a “yes” from a lender.
As we mentioned earlier, lenders will also be able to see your previous loan applications – whether successful or not – on your credit report. Public record information like bankruptcies, debt management plans, and Individual Voluntary Arrangements will also appear.
What’s a credit score?
Your credit score is calculated using all of the information in your credit report – a credit score is an actual number. This number is then used by lenders to help them determine whether you qualify for a particular loan or other financial product.
They use your credit score along with any other personal information that you provide in your application like your income when they’re assessing your application. Once they know what kind of borrower you are, how likely it is you will manage your repayments, and whether you meet their criteria, they then decide whether they wish to lend to you.
Who compiles credit checks?
In the UK, there are three main credit reference agencies which provide credit reports to lenders. They are Experian, CallCredit, and Equifax.
They take all of the information supplied to them by lenders you’ve worked with, your bank, and even utility companies to create your credit history report.
Your credit report is then updated roughly once a month with data being held on your report for approximately six years on average before being removed. Keeping information for six years can make it difficult for those with bad credit to get the funding they need quickly.
Why do lenders check credit reports?
The reason why credit reports are so important to loan providers is because they tell them how likely it is that you will be able to repay your loan. If you have had difficulty meeting your loan repayments on time in the past, this suggests to some lenders that you apply to that they may not get their money back.
Good credit ratings and reliable payment histories show you are able to manage credit so there is less risk to the loan provider and they will feel more comfortable lending to you.
Lenders also have an obligation to make sure you do not get yourself into irreparable debt by taking out loans you can’t afford on top of other credit you already have. That’s why credit checks – along with affordability assessments – are critical to lenders.
Does my credit report contains details of payments I’ve missed?
Yes. When a lender carries out a credit check on your file, they will be able to see every late and missed payment for the last six years. This helps them to decide how you might behave as a borrower and to decide on whether they think that it is too risky to loan money to you.
Does my credit report tell a lender whether I’m in an Individual Voluntary Arrangement, on a debt management plan, or bankrupt?
Yes. Lenders are able to see if you have entered into an individual voluntary arrangement or debt management plan as well as whether you have ever been declared bankrupt.
What happens when I apply for a loan? Will they check my credit report?
The first thing lenders do is check the details you give them
During your loan application, you will give personal information such as your name, address, and employment details. Your lender will run a check on all of these to ensure you are who you say you are and to confirm your income.
The latter is known as an affordability assessment. These assessments are there to make sure you can comfortably meet your monthly loan repayments.
They then check your credit report
Once this is complete, they will certainly need to check your credit history to assess the risk in lending to you.
They then come to a decision
With all of this information, your lender will then decide whether or not to accept your loan application. You will be given either:
- a ‘yes’ and then the money will be put in your account once you’ve signed the online paperwork,
- a ‘no’, or
- they will request more information from you to help them decide.
No credit check loans – do they exist?
Put simply, no. Credit checks must always be carried out in order for a loan provider to lend to you responsibly.
All reputable lenders in the UK must be authorised and regulated by the Financial Conduct Authority (FCA). One of the main FCA guidelines that all lenders must follow is that they must carry out an assessment of your creditworthiness before they can approve your loan application.
Your credit check and the further information you provide must make a lender feel confident that you are able to afford your loan repayments to ensure your financial situation is not made worse by taking on additional credit.
Bad credit loans – what are they?
While you may not be able to take out a loan without a credit check, some lenders do actually specialise in lending to people with poor credit. There are two main types of bad credit loans – payday loans and short-term loans.
These loans can be paid back in manageable monthly instalments for between two and twelve months depending on your needs.
If you have a sudden financial emergency but don’t have the money to cover it up front, payday loans provide you with the funding you need to be paid back when you next get paid or within 30 days.
Apply for a bad credit loan through Loan Princess
If you have bad credit and you need to take out a loan, it can be difficult to find a lender willing to work with you. That’s where a Financial Conduct Authority-licenced loan broker like Loan Princess can help you find a suitable lender with the cheapest rates and the best terms for your situation.
Simply fill in our simple online form and we will send your application to our panel of the top bad credit loan providers in the UK. You can tell us how much you’re looking to borrow, how long you would like to borrow it for, and how you plan on paying it back and we’ll take it from there.
Our close relationship with all out lender partners means we know exactly what they look for in a borrower. The Loan Princess experts can then match you up the lenders most likely to accept you for credit based on the information you provide us with.
We carry out just one single credit check for your application even if we’ve found ten lenders who want to work with you. We forward your credit report direct to the lenders for review.
After that, we receive personalised offers from our lenders based on your credit history and we present you with the cheapest loan deal possible.
Get in touch with Loan Princess today to start searching for bad credit loans tailored to you.