How does soft search work | Car Finance 4 Bad Credit
How does soft search work?
At Car Finance 4 Bad Credit we sometimes get asked what “Soft Search” really means and how it works?
The short answer: Soft search, sometimes known as smart search, is there to protect your credit rating. Instead of creating a hard search that can stay on your credit file for years, a soft search allows a lender to check out your credit history without putting a hard search on your file which can potentially damage your score. Other potential lenders cannot see a soft search.
How does my credit score affect me?
When a lender runs a search on your credit file they check with one of more of the big credit agencies. These agencies are the big beasts of the credit checking world and there are 3 of them :
They all do much the same thing in that they collect data on how individuals and businesses manage credit down through the years. This means that they are able to predict how likely you are to pay and use a score to make this easy to communicate to lenders. Different lenders will have different risk appetites (how much risk they want to take) and they then set a score threshold themselves, below which they will not approve a credit application.
Lenders also use the score to assess what Interest rate (APR) they will look for when granting credit. Bottom line is, the lower your score the less likely you are to be approved or when you are approved you may well have a higher APR and need to pay more for the credit facility.
What makes up my credit score?
The score is created by a complex formula that takes into account many factors such as:
If you have previously had credit - if you don’t have a credit footprint then it's harder for credit agencies to assess the risk so if you have what is known as a “thin file” then this will negatively affect your score. Equally, if you have loads of credit from many sources than this can also count against you unless you have a perfect credit record of paying all your debts in which case it's generally not a problem
Your past performance when paying off credit is obviously a major factor. If you have missed direct debits or CCJ’s (County Court Judgements) then this will mark you down but importantly it does not mean that you automatically won’t get credit - you are just likely to need to pay more to borrow money with a higher APR. If you are in an IVA then you can still get credit but expect to pay more and you can find out more about applying for credit with CCJ’s or if you are in an IVA here or feel free to apply here.
Credit Utilisation: It sounds strange but credit agencies want to see you have access to credit and you use it and pay it off but they mark you down if you use too much of your credit facilities. Say for example you have 3 credit cards with a total of £10,000 credit limit. If you run to say £3,000 of credit on these cards in a month you would have a 30% utilisation. Provided you are paying at least the minimum monthly payment ( normally around 3% of the balance on all the cards) you should be fine and this will help your credit score.
Opinions differ on what perfect credit utilisation is but the rule of thumb is not to go over 50% of your agreed credit amount available on your car(s) and if you can keep it under 40% - even better.
Other factors which influence your credit score:
Age of accounts: Don’t close down old accounts. Credit agencies use how long you have had open accounts to gauge how long you have been getting credit for - the longer the better.
Direct debits: If you have a number of direct debits and you pay them every month then this is a plus from the credit agencies perspective as you have committed to payments you make regularly.
Voters roll: Get on the voters roll. Agencies use this to check your address and they also need it to run some of their checks so being on the voters roll helps. You can apply to register to vote here.
Lots of Hard Searches: If you apply for credit from a number of places then be careful that they use a soft search. Sometimes it is difficult to avoid as the likes of mobile phone companies use hard search but when it is possible to avoid a hard search, for example when looking for car finance, make sure you take this option. Car Finance 4 Bad Credit only use soft search in the first instance to avoid harming your credit file.
So in summary, soft searches are not visible to multiple lenders - they are like a quote to see if you will get approved for credit without leaving a negative mark on your history. There are many things you can do to improve your credit score and there are some things to avoid but, of the ones in your control, using soft search where you can is one of the most important.
Carfinance4badcredit.com is on your side. We have a huge panel of 16 lenders and a genuine and friendly team that help you to get finance using soft search. Car Finance 4 Bad Credit do not charge you fees and you can choose a car yourself from any reputable dealer or let us help you find the car of your dreams with our free car finding service. Call us on 01723 33 53 33 or email us on [email protected]