Surge in borrowers protecting their credit scores

UK borrowers are increasingly using 'soft searches' to avoid damaging their credit score when applying for credit cards and loans - but one in five wrongly believe the eligibility check will harm their credit rating.

Data shared exclusively with Which? by Experian, the UK's largest credit reference agency, shows that the number of eligibility checks - which indicate whether you're likely to be accepted for a particular product - has doubled in the past four years.

Over three quarters (77%) of credit card applicants used a soft search in February 2019 compared with less than a third (29%) in February 2015 - a 48% rise. Soft searches have seen a similar surge in popularity when it comes to shopping for the best personal loans, rising from 45% in 2015 to 79% in 2019.

However, despite the benefits of using a soft search, some borrowers are still not checking their eligibility. Worryingly, one in five (20%) believe it can harm their credit score.

Which? explains what a soft search is, how it protects your credit score and what you can do to boost your chances of getting the best credit card or personal loan.

Soft searches vs hard searches

A 'soft search' allows you to check how likely you are to be accepted for a particular financial product such as a credit card, loan or mortgage before actually applying.

Soft searches don't go onto your credit report, so whatever the result of the search there won't be any impact on your credit score.

In contrast, a 'hard search', which takes place when you actually make an application, leaves a mark on your report. This is likely to have a negative impact on your credit rating if you get rejected and have to apply elsewhere.

In the past, very few lenders offered a soft search, which meant borrowers had no way of knowing if they would be accepted for a credit card, loan or mortgage until they applied.

Now, the availability of soft search eligibility checker tools is growing, giving borrowers a better idea of whether they'll qualify for a deal without harming their credit score.

Why is your credit score important?

The three main credit reference agencies - Experian, Equifax and TransUnion - produce your credit score based on the information they hold about you in your credit report.

The score can give you an idea of how positively or negatively a lender will view you when deciding whether to approve you for a loan, credit card or mortgage deal.

Typically, a high credit score will help you unlock the best rates while a low score could see you rejected or offered a worse deal.

So it's important you check your credit report and score with all three credit reference agencies to ensure you are in the best position when applying for a financial product.

• Find out more: how to check your credit score for free

Who takes out the most credit?

Experian's data shows that those aged between 18 and 30 made the most applications for credit cards and loans. Last year, borrowers in this age group made up a third of applications for loans (33%) and 29% of applications for credit cards.

Borrowers aged between 46 and 55 accounted for less than a fifth of credit card (18%) and loan (19%) applications in this period, while those aged 56-65 made up just 10% of applications for credit cards and 8% for loans.

Experian says those in their 20s and 30s tend to have the highest demand for credit as this is typically when people make big financial commitments, while older borrowers may be less reliant on credit.

How to get the best deal on credit cards and loans

When you're shopping around for a deal, don't base your decision purely on the headline interest rate. Lenders only have to offer the headline rate on credit cards and loans to 51% of those that apply and are accepted, which means 49% could be offered a worse deal.

Soft searches are a great way to check if you qualify, but there are other steps you can take to boost your chances of securing the deal you want.

Check your credit report - you should check your Experian, Equifax and TransUnion credit reports are up to date and don't contain any errors which could be dragging your score down.

Boost your credit score - if you find your credit score is low you can take actions to improve it before applying for a loan or credit card. Simple steps like registering to vote can give your score a boost and make you look more attractive to lenders.

Correct errors on your report - if you see any mistakes on your credit report you should contact the credit reference agency to get them corrected.

Avoid deals with variable APRs - when shopping for a credit card or personal loan you should scan the terms and conditions to see if the lender offers variable interest rates, as some base how much they charge you on your personal circumstances.