Yes, a credit check is usually carried out during the application process for a payday loan.
Loans are typically subject to status, meaning that approval is based on your credit score and you may require a minimum credit score to be eligible. Your credit rating is checked by the lender using information from the three main credit reference agencies in the UK: Equifax, Experian and CallCredit.
Payday lenders are able to access information about your credit history and get real-time information on any existing credit cards and loans and determine whether you are eligible and suitable to borrow money
Credit checks offer an effective way for a lender to see if their prospective borrowers have any paid debts or debts in arrears – and they can use this information to determine whether or not someone is likely to repay their loan on time.
Does a credit check impact my credit score?
If a lender runs a credit check on your name or account, this is likely to impact your overall credit score, unless they carry out a soft check which may not impact your overall credit score.
A credit search known as a ‘search footprint’ will appear on the applicant’s credit file after a search has been conducted and will remain there for a maximum of 12 months.
This information is useful to other lenders, specifically if the borrower has generated an abnormal amount of credit searches in a short space of time. This could negatively impact their credit rating because it suggests they may be desperate for funds.
What is included in a credit check?
A credit check will look at a number of items including:
- Card details
- Repayment history
- History of arrears
- Outstanding debts
- Products including loans, mortgages, phone bills and credit cards
- Joint accounts or people you are associated with financially e.g current accounts, mortgages
A credit check is designed to give the lender an overview of your creditworthiness and credibility to repay your loan on time.
This includes some identity checks that match up your name against your address and card details. In addition, a credit check covers any loans that you have repaid on time, any payments in arrears and any loans outstanding. How much debt you have outstanding could have an impact on how much you can borrow and whether your application is approved.
What other checks are carried out?Basic checks:
Every company that offers payday loans
will have a list of initial criteria and this will be filtered out during the application. This includes applicants being:
- Over the age of 18
- Full-time UK residents
- Employed or able to affordable repayments
- Valid UK bank account
- Valid UK mobile phone number
Short term lenders must ensure that customers can afford to repay their loans without falling into financial difficulty. Affordability checks aim to match the amount that the customer has applied to borrow and what they can afford to repay. This could be looking at income against any current debts, outgoings and monthly expenditure – and finding the perfect amount they can borrow or declining their application.
Can I still get a payday loan with bad credit?
Yes, there are ways that individuals can still get access to payday loans, even with adverse credit histories.
For instance, there is a difference between someone who has very bad credit and is getting into a spiral of debt, compared to someone who has bad credit but is improving their credit situation and has been successfully paying all their debts on time for the last year or longer.
Furthermore, if you have a stable income and are not taking on many other loans or expenses, you may have good affordability and be able to borrow money.
In the event that you do have bad credit, most lenders such as Fund Ourselves will be willing to take a view and may always adjust the amount you wish to borrow and the duration so that it is affordable and more flexible for you to pay on time.
Are there payday loans with no credit checks?
All mainstream payday lenders must carry out credit checks according to FCA regulation, so finding a payday loan without a credit check is unlikely.
However, there are some alternative finance options such as borrowing from friends or family or applying for money from your local credit union which will not be subject to credit checks.
Where can I see my credit score?
If you are interested in checking your credit score, you can enquire with the credit reference agencies such as Experian and request your credit report for just £2
. Or you can use a free trial to watch and monitor your credit score so that you can work on improving it and get updates every time it goes up or down. After the free trial expires, this usually costs just a few pounds per month.