Applying for finance or credit? Read this first

The more applications you make for finance or credit, including rejected applications, the more likely you are to have future applications rejected or to be charged higher rates.

Top tips

Before making your application, check your credit record to understand what your lender will see.

Find out if the lender will record a “hard” credit application search on your credit record, or a “soft search” or quotation search.

Make sure you are informed of each lender your credit application will be sent to.

Avoid using multiple brokers simultaneously.

Space out credit applications and prioritise them. If you are applying for a mortgage or large loan, it could make sense to complete this application first.

Read our tips on improving your credit record, or have a look at the advice on the credit reference agencies' websites.

Credit records

Most finance providers refer to your credit record when assessing whether to grant credit.

This includes applications for phone contracts or to pay your car insurance monthly as well as credit cards, mortgages and loans.

Employers, landlords, and insurance companies may also look at your credit record when assessing your suitability.

Credit records are maintained by each of the three Credit Reference Agencies in the UK (Call Credit, Equifax, Experian). These are not identical records, but would be broadly similar.

They store information about you and your credit history. This includes credit you have applied for as well as credit you have obtained. They record if you make your repayments on time, or if you miss payments or default. They also record County Court Judgments, IVA and bankruptcy details.

You are entitled to a written copy of your credit report from any credit reference agency, subject to paying £2. The credit reference agencies also provide online access, but usually at a higher fee.

A good credit record means you are likely to have credit applications approved and get the best rates available. A bad credit record means chances are you will be declined or pay a much higher interest rate.

Applying for credit

When you apply for credit, a lender usually searches the information on your credit file to assess how likely you are to repay the money on time and if they should accept your application or charge you more.

Every search is recorded on your credit record.

Searches can take two forms – “hard” search which is a loan application search and “soft” search which is a quotation search.

This may seem like a technical difference, but it can have a significant impact.

“Soft” searches are ignored by lenders when processing an application.

But the more “hard” searches on your credit record, the higher risk a lender will perceive you to be.

If you have made lots of recent credit applications, it can look like you are desperate for credit. This means you will be less likely to be approved, or you will be charged a higher rate.

The credit dilemma

Most brokers, including car dealerships, will send your credit application to multiple lenders. This can be on the basis of a pre-defined sequence of lenders or just guesswork.

Each time a lender performs a 'hard' credit search the likelihood of the next lender accepting your application reduces.

This can result in you paying a much higher cost for credit than you would have done if your application went to that lender at the beginning.

It can also mean future credit applications e.g. mortgages or additional loans, may be rejected or charged at higher rates.

However, unless you have excellent credit, it is difficult to know which lender you should apply to. Using a broker means you can access multiple lenders faster than it would take if you applied to them separately.

The MotorPocket difference

At MotorPocket we use our lender's acceptance criteria and timings of their soft and hard searches to more accurately place customers with the appropriate lenders to minimise any detrimental effect on credit records.

We keep you informed of each lender your application will be sent to and the impact this may have on your credit record.