A credit footprint is a record to show that a lender or a creditor has searched your credit file.
When you apply to borrow money, or even for some monthly services like a mobile phone contract, the lender must perform this credit check to assess your previous history of borrowing and repaying money.
Using a credit reference agency, a loan provider will look at your credit file to also see how much you are currently borrowing, whether you are on the electoral register, if you have a CCJ or an IVA and various other indicators of your financial situation.
How Does A Credit Footprint Affect My Credit Score?
When borrowing any amount of money, it’s not just necessary to have a good credit file, it’s also important to show that you have a credit footprint. Having nothing to show on your credit file can be as bad as having poor credit. This is because lenders have no way of knowing how you handle money if there is no evidence of this on your credit file.
On the other hand if a creditor sees that you have recently recorded lots of credit footprints it implies that you are in financial difficulty or are unable to adequately manage your money. For instance, while applying for payday loans could be convenient for covering an unforeseen circumstance, too many recent footprints left by short term lenders could negatively impact your credit score. Recording several credit searches in one day could even indicate that someone is fraudulently using your card details to borrow money.
Some information can stay on your credit file for up to six years, such as completed loan whether it’s been paid on time or defaulted. Even a credit application search footprint will stay on your file for a year, so it’s important to take this into consideration before applying for different lines of credit.
Soft and Hard Credit Checks
The only way to guarantee that you’ll be accepted for a loan or credit card is to apply, leaving a credit search footprint on your file. But there are types of different types of credit check— a hard credit check, and a soft credit check.
A hard credit check is a complete search of your credit file, which as mentioned earlier, will be visible to other lenders that you’ve applied for credit. This search must be done before you are approved for a loan.
A soft credit check on the other hand is a far less thorough check on your credit file, it’s used as an initial assessment to see whether your application is likely to be approved without a full inspection. Vitally, a soft credit check is not visible to other lenders and does not leave a footprint on your credit file. This means that it will not affect any future applications for credit.
How To Create A Good Credit Footprint
Building a good credit score requires you to take out credit and pay it back on time. Repaying your borrowings regularly proves to other lenders that you are reliable with how you manage your money. Credit cards are a good example of this— making small but frequent payments on your credit card and paying it back on time will show that you are a responsible borrower.
Direct Debits can also be used to help improve your credit file. Setting up payments for things like a utility bill shows that you aren’t concerned that the funds won’t be there and that they can be collected automatically each month. Remember to try to set up direct debits to leave your account after payday, or you could risk not having enough funds!
Once you have regular on-time credit repayments and can show a couple of credit footprints on your credit file, this demonstrates a healthy financial background.