14 December 2017

70% of consumers do not know the difference between a ‘hard’ and ‘soft’ credit check

Majority of personal loans providers perform unnecessary hard credit checks.

Demystifying credit checks: new research shows confusion among consumers about how credit checks affect them. 

TSB provides personalised quotes on personal loans without affecting credit rating.

New research by TSB has revealed that 70 per cent of consumers do not know the difference between a soft and hard credit check. [i]  This is potentially costing borrowers around £418 each in extra interest on a typical loan. [ii]

Consumers are being punished for shopping around

The majority (61%) of providers perform unnecessary hard credit checks when a consumer looking for a personal loan just asks for a price or rate. 

And hard quotes are costly – in one of two ways.  If a customer shops around for a loan and gets multiple hard credit searches, the credit footprints the customer incurs could increase their loan APR.  This is because it looks to providers like the customer has made several applications for credit.  When in fact, all they are actually doing is shopping around to get the best deal for their needs.

Or a consumer may be put off from shopping around at all, meaning they go to their main bank account provider.  These customers often end up paying a higher APR on loans with the big banks compared with market leaders. 

The extent of the problem

TSB estimates that consumers are losing out by as much as £400 million each year because they are punished for shopping around. 

Yet the solution is simple.  Soft credit checks do not affect people’s credit rating in any way – and this is something that TSB uses to provide personalised quotes to personal loans customers without affecting their credit rating. 

In TSB’s Consumers Matter report, the Bank calls on loans providers to never make a hard mark on a consumer’s credit file until they actually choose to purchase a loan – allowing customers to shop around freely to get the best deal for their needs.

And not all personal loans are created equally.  It is essential that people not only borrow an amount they can afford to repay and at a competitive interest rate, but that they understand the product’s features such as whether they can take a payment holiday or if there are fees for paying off the loan in full early.  TSB is committed to helping people to ‘borrow well’, which means helping them to borrow money in a way that makes the best financial sense for them. 

Demystifying credit checks

Furthermore, research by TSB reveals that there is a lot of confusion among consumers about how credit checks affect them.  The research shows:

  • 43% of consumers believe that previous occupants at their address affect their credit rating, while a further 20% are not sure.  Previous occupants do not impact their credit rating.
  • 29% of consumers believe that credit reference agencies make lending decisions, while a further 22% are not sure.  In reality, loans providers make the decision, but they use credit reference agencies to help them understand a customer’s credit history better.  This is why hard credit checks on loans quotes are bad for consumers; it looks like they’ve made multiple applications for credit.
  • 24% of consumers believe that checking their credit report impacts their credit rating, while a further 20% are not sure.  Checking a credit report does not impact their credit rating and consumers can do so very easily online.  They may want to consider checking the three main agencies: Experian, Equifax and TransUnion.

Nick Smith, Head of Loans at TSB, says:  “For any market to operate well, consumers have to be able to shop around to get the best deal for their needs.  But that’s not what’s happening today, as the majority of providers penalise you for shopping around.

“If you take the time to shop around for a new car it normally pays off and you get a better deal.  But if you shop around for a loan to buy that car, you often end up worse off as your credit rating is hit and it could end up costing you dearly in extra interest. 

“Our research shows that most people do not know the difference between a ‘hard’ and ‘soft’ credit check – so it is important we continue to demystify credit checks.  TSB is committed to helping our customers borrow well, which is why we offer personalised quotes on a TSB loan without affecting credit ratings.”

About TSB

TSB was built to bring more competition to UK banking and ultimately make banking better for all UK consumers. TSB only serves local customers and local businesses, to help fuel local economies, because communities thriving across Britain is a good thing for all of us.

We have a simple, straightforward and transparent banking model and make clear on our website how we operate and make money. We offer the products and services people tell us they want, with none of the funny stuff people normally associate with traditional banks.

Our five million customers appear to notice: TSB is Britain’s most recommended high street bank and was recently identified as one of the top 10 big companies to work for.

For further information about TSB Bank plc, please visit our website www.tsb.co.uk.


[i] Research conducted by OnePoll: 2,000 respondents.

[ii] In the event a customer does not shop around or gets a worse deal as a result of multiple hard credit searches on their account the likely fall back is taking out a loan with their main bank account provider.  These customers pay an average of 2% higher APRs on loans with the big banks rather than market leaders.  On an average loan (£10,000 over four years – from ebenchmarkers) that equates to £418 more interest.  We calculate that almost one million customers each year fail to shop around, meaning that consumers are being charged an extra £397m in interest each year as a result.

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