Loan Credit Checks: What You Need to Know

People apply for loans for many different reasons. For some, it’s to seize a moment and progress in life, perhaps with a new car, mortgage on a home or for the startup costs to begin a business. For others, a loan represents a helping hand to hoist a person out of a hapless scenario – such as sudden household repairs or to pay off mounting debts.

When a person applies for a loan or a different form of credit, discretion falls upon the lender and it is their responsibility to decide whether or not a person is a suitable borrower. The criteria in which creditors to use to determine this is explained below.

What is a credit check?

A loan credit check is simply a risk calculation made up of multiple factors which, when assessed together, form an understanding of a person’s borrowing credibility.

Factors include, but are not limited to:

  • Debts you’ve avoided by moving house
  • Where you reside
  • How you spend your money habitually
  • Times you’ve been summoned to court
  • Linked or joint bank accounts
  • Your positive and negative repayment habits
  • Times you’ve been the victim of fraud
  • How much existing credit you owe and to who


Each time a person applies for a credit check, information – such as the data above – is analysed to determine their suitability for a loan. Additionally, the credit check is recorded in your personal report for up to a year and is present and visible for other credit checks during that period – making numerous applications during a short time period will therefore result in lenders being less trustful of your application.

Why they’re important

Loan credit checks are an integral part of the lending and borrowing process. By practising credit checks, it ensures the agreement is both legal and ethical. If a vulnerable person applies for a loan outside of their means, and they don’t have a way of paying it back or have a history of failed repayments, it would be unethical for the loan provider to approve the loan.

Providers try to ensure this won’t be the case by requesting a credit check and avoid misguidedly placing a person into unpayable debt. Loan credit checks also aim to stop fraud, protecting a lender’s financial integrity – so both parties are safeguarded.

When a loan credit check identifies an issue

If you have any unpaid debts to your name – such as an outstanding personal loan – a credit check will locate the details and make them apparent to the loan provider. If this kind of information is located and is negative – for example, if you’ve failed to meet repayments – loan providers will deem you a riskier borrower and may be less likely to approve your loan.

You can check yourself, before applying

In the past, the only way to determine whether or not a loan application would be approved was to go through the rigmarole of an application – and on occasion be met with a decline. These days, thankfully, there are a range of freely accessible tools online which can help you decide whether or not applying for a loan is a good idea.

People wondering how to check their credit score needn’t wonder anymore. Free credit check tools, such as Noddle, Experian and Money Saving Expert’s eligibility loans calculator all offer a thorough credit check when details and data are entered correctly. While they cannot give a certain answer, these tools will give readers a strong estimate of their suitability.

Beware of ‘no credit check loans’

Taking all of the above points into account, it becomes clear why bad credit loans with ‘no credit check’ should be avoided. Designed for people who have had loan requests rejected, these types of high-risk loans are desperate measures with sometimes grave consequences. In fact, any responsible lender would not offer this type of loan, as checking an applicant’s credit history is vital to determining whether they’re able to comfortably repay their loan. If you do pursue a so-called ‘no credit check’ loan, expect much higher interest rates, substantial penalties and often outrageous fees.

With all of the above in mind, it’s recommended loan seekers apply for loans infrequently and improve their credit rating prior to application, for better interest rates and higher chance of approval.