Online loan credit score
Online loan credit score

Can applying for online loans affect my credit score?

10th May 2024

When you apply for a loan, lenders conduct a credit check. It's essentially a deep dive into your financial history to help them decide if they're comfortable lending you money. So, it's only natural to wonder about the impact a loan application might have on your credit score.

Before you apply for a loan, it’s a good idea to understand what credit checks are, the difference between hard and soft checks, and how they could affect your credit score.

What is a credit check?

A credit check, also called a credit search, happens when a lender looks at your credit report to understand how you handle money and your financial circumstances. This helps them figure out if you can manage repayments on time.

What are soft searches and hard searches?

Soft searches: These are preliminary credit checks performed by lenders before the formal loan application process.

This type of search doesn't affect your credit score as it isn’t visible to other lenders on your credit report. Tools like online eligibility calculators or pre-qualification checks on lenders' websites usually involve soft searches. They give you an idea of what loans you might qualify for without risking your credit rating.

At Oakbrook Loans, we use a soft credit search to offer you a guaranteed interest rate which does not have any impact on your credit score. You can view the quote and look at the repayment plan to see if it suits you.

Hard searches: This occurs when you officially apply for a loan and the lender does a comprehensive evaluation of your credit history. Hard searches are recorded on your credit report and can lower your credit score. While usually not a problem, hard credit searches will be recorded on your credit file and will remain there for up to twelve months.

With Oakbrook Loans, we run a soft credit check when you request a quote. After you decide to proceed with the application, we perform a hard credit check, which is visible to other lenders (unlike a soft search). Rest assured; we get your consent to conduct a hard search before proceeding.

Impact of multiple hard searches on your credit file

Multiple hard searches within a short period (say, several within six months) can accumulate and have a more significant impact. This is because frequent hard searches in a short period might indicate to lenders that you're actively seeking credit, which could be seen as a sign of financial instability.

While it makes sense to shop around for the best interest rates on loans, credit cards, or mortgages, Money Expert advises against submitting multiple applications simultaneously.

Instead, it is best to seek out different lenders and go for those that suit you the best.

Do personal loans affect your credit score?

Taking out a personal loan will impact your credit file. It increases your debt-to-income ratio, a factor in a lender's affordability checks. Lenders want to be sure you can afford the monthly loan repayments. So, they check how much of your income goes into paying credit commitments.

If you are curious about how much you’ll be paying each month if/when you take on a loan, then you can use a loan calculator before making a commitment.

However, on the flip side, a personal loan could contribute to building your credit history . If you make sure to pay off your loan on time every month, it shows future lenders that you can manage debt responsibly and could improve your credit score.

Check your eligibility with a soft search with Oakbrook Loans

Oakbrook Loans offers a straightforward and transparent loan application process. By checking your eligibility, you receive a quote detailing your guaranteed interest rate and repayment plan. When you're ready to move forward with your loan application, that's when we do a hard check. If everything gets the green light, you will see the funds in your bank on the same day.

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