Lenders always perform a credit check to review your financial history. Find out more about what it really is.

Lenders, banks, credit card providers, and other financial institutions always perform a credit check to review an individual's financial history before extending a new line of credit. A prospective lender will almost always run a credit check on your credit history by reviewing one of your credit reports generated by major credit reporting bureaus. These reports provide clear data to the lenders about how you handle credit and how much space you have to take on more.

In this article, we take a look at everything there is to know about credit checks and more.

What are credit checks?

A credit check or a credit inquiry gives a lender to your credit report and history in order to better understand how you stay on top of things. Depending on the reason behind the credit check, the lender may conduct a hard credit check or a soft credit check. Both of these types of checks show different amounts of information and each has a different effect on your credit score.

Lenders can pull credit reports from one or both major credit reporting bodies including Experian and Equifax. Each body follows its own scoring model and may have a different credit score for you. So the result of the credit bureau checks can also differ.

How does a credit check work?

Credit reporting agencies collect information from several lenders and companies around the country. Then they use this information to create detailed credit reports and calculate credit scores of individuals.

When a lender, bank, company, or even your landlord does credit checking against you, they receive a copy of your credit report from the credit bureau to assess your creditworthiness. This in turn helps institutions evaluate your eligibility for a new line of credit.

Note that not all lenders report to all credit bureaus and because of this your credit report information and even your credit score can be different, depending on the bureau. For instance, your Experian credit report may be different from your Equifax credit report.

What does a credit check show?

When lenders or companies conduct a credit check, they review your credit report sent by credit reporting bureaus. The information shown to the lender depends on whether they are conducting a hard credit inquiry or soft credit inquiry.

While a soft credit inquiry only shows limited information from your credit report, enough to verify your information, a hard credit inquiry gives a more broader overview of your financial history. A creditor check also shows your credit score, which is the number that indicates your credit worthiness.

Though, it's important to note that no matter what kind of credit record check a lender runs, they won't be able to see how much you earn or view your bank statements.

Who can perform a credit check on me?

A number of third parties can run credit checks on you but they all need to have valid reasons for running the check.

When you apply for a new line of credit, whether it is to get a new loan, credit card, mortgage, or car finance, a credit check will be performed. Banks can also conduct credit checks when you decide to open a new account with them.

Here are some of the many organizations that can run credit checks on you:

• Credit card providers

• Loan providers

• Insurance providers

• Utility companies like gas, electricity, and water

• Mobile phone companies

• Employers

• Landlords

While some of the above can perform both hard and soft credit checks, others can only perform soft credit checks. Note that there are also no credit check loans available that extend a new line of credit without any kind of credit check.

No credit check loans vs standard credit check loans

No credit check loans can sound appealing if you are worried about the impact of hard inquiries on your score, but they come with trade-offs that every borrower should understand. The table below compares the key features of standard loans, no credit check loans, and soft-check pre-approval loans available in Australia.

What are no credit check loans and how do they work in Australia?

No credit check loans are products offered by certain lenders who assess your application without pulling your credit file. Instead, they may look at your recent bank statements, employment status, or income evidence to decide whether to lend. Because the lender takes on more risk by skipping the credit check, these loans typically carry much higher interest rates and fees, and the borrowing limits tend to be lower.

What are the risks of no credit check loans?

The main risk is cost. Higher interest rates mean you pay substantially more over the life of the loan compared to a standard product. Some no credit check lenders also charge steep establishment fees and early-repayment penalties. Before turning to a no credit check loan, consider using ClearScore (a credit broker, not a lender) to see mainstream products you may be eligible for - the lender makes the final eligibility and approval decision, but you might find a better deal without any impact on your score.

What is a soft credit check?

A soft credit check is conducted to get a basic idea about your credit history. It only shows limited information about you and it is used as a general background check to confirm your identity.

More importantly, soft credit checks are not marked on your credit report and they do not impact your credit score in any way

When an organisation runs a soft credit inquiry on your credit file, they can see your:

• Name

• Date of birth

• Previous and current address

• An overview of your credit history

There are many situations where a soft credit check can be conducted, including:

• When you check your own credit report

• When a company reviews your credit report for verification purposes

• When you take a new insurance policy

• When you are renting a new property

• When a bank or lender checks your credit report for pre-approval offers

What is a hard credit check?

A hard credit check gives a complete and detailed view of your entire credit history. Also known as a hard credit inquiry, it shows lenders how you have handled credit and repayments in the past.

Lenders conduct hard checks to understand the level of risk you present as a borrower. They assess how likely you are to repay back the loan or credit in case they approve your credit application. Hard credit checks also help lenders determine the terms of agreement like interest rate, repayment period, and whether the new line of credit requires a security deposit or collateral for assurance.

As opposed to a soft credit check, a hard credit check will leave a mark on your credit report.

So, how long do inquiries stay on your credit report? Hard inquiries can stay on your credit file for up to five years. They will also be visible to any lenders who view your credit reports.

There are many situations where a hard credit check can be conducted, including:

• When you apply for a new line of credit

• When you refinance a mortgage or car loan

• When you sign up with a utility provider

• When you get a new mobile phone contract

Since hard credit inquiries stay on your credit report for many years, too many hard inquiries in a short span of time can affect your credit score and report and your ability to get a new line of credit.

When lenders see multiple hard inquiries made recently, it shows that you have been in the market for credit and have been unsuccessful so far.

It's important to note that while every application for a new line of credit creates a hard credit check, whether the application was approved or rejected isn't marked on the credit report. The lenders can only see that you applied for new credit but they cannot see whether you got it or not.

Hard credit checks vs soft credit checks

Frequently asked questions about credit checks

What does a soft credit check show?

A soft credit check shows a limited snapshot of your credit file. It typically reveals your full name, date of birth, current and previous addresses, and a high-level overview of your credit history. It does not expose the detailed repayment records, defaults, or court judgements that a hard inquiry would reveal. Because the information is limited, soft checks are mainly used for identity verification, pre-approval offers, and personal credit monitoring through services like ClearScore.

Can a landlord do a hard credit check without my permission?

No. Under Australian privacy law, a hard credit check can only be conducted with your explicit consent. Landlords and property managers typically run a soft credit check as part of a tenancy application, which does not require your consent and does not affect your credit score and report. If a landlord or real estate agent performs a hard inquiry without your knowledge, you have the right to dispute it with the relevant credit reporting bureau.

How long does a hard credit inquiry stay on your report in Australia?

A hard credit inquiry remains on your Australian credit file for five years from the date of the application. During this time it is visible to any lender who accesses your report. While a single inquiry has only a minor effect on your score, multiple hard checks within a short period can add up. For more detail, see our guide on how long inquiries stay on your credit report.

Do multiple credit checks for the same loan count as one inquiry?

In many cases, yes. Australian credit scoring models generally recognise that consumers shop around for the best deal on home loans, car loans, and similar products. When several hard inquiries of the same loan type are made within a short window - usually around 14 days - they are often grouped and treated as a single inquiry for scoring purposes. This "rate-shopping" allowance means you can compare offers from multiple lenders without each application compounding the effect on your credit score. To be safe, try to keep all comparison applications within the same fortnight.

How hard inquiries affect your credit score and report

While there are many factors that can majorly impact your credit score and hard inquiry only has a small impact on your score, it can still impact your score to some extent. Hard credit checks are marked on your credit score and too many hard inquiries in a short span of time can decrease your credit score. To put it simply, credit checks can affect credit scores, but only in some cases.

Where do credit checks rank among factors that affect your score?

Hard credit inquiries do affect your credit score and report, but they sit well below the factors that carry the most weight. Understanding where inquiries fit in the overall picture helps you focus your energy on what truly matters.

Australian credit scoring factors in order of weight

Although the exact formulas used by credit reporting bodies like Experian and Equifax are proprietary, the general hierarchy is well established. Repayment history is the single biggest factor - whether you pay bills on time, every time, has more influence on your score than anything else. Defaults and serious credit infringements (such as court judgements or bankruptcies) come next, followed by your total level of existing debt and the types of credit you hold. Credit inquiries sit near the bottom of the list, carrying only a minor influence compared to these heavier factors.

Why repayment history and defaults matter far more than inquiries

A missed payment or a recorded default can reduce your credit score by far more than several hard inquiries combined. Defaults remain on your Australian credit file for five years (or seven years for serious infringements), and they signal to lenders that you have failed to meet a financial obligation. By contrast, a hard inquiry simply shows that you applied for credit - it says nothing about whether you struggled to repay.

How a single hard check compares to a missed payment

A single hard inquiry typically causes only a small, temporary dip in your score - often just a handful of points. A missed repayment, on the other hand, can knock your score down significantly and continue to weigh on it for years. If you are looking for the biggest lever to protect and improve your credit score, concentrate on paying every bill by its due date and keeping your credit card balances manageable. Managing inquiries is still worthwhile, but it is a fine-tuning exercise rather than the main game. You can check your credit score for free with ClearScore to see exactly where you stand.

How soft inquiries affect your credit score and report

Soft credit checks do not get marked on your credit report and they do not affect your credit score and report in any way. For instance when you check your own credit report or when a lender reviews your credit history to provide you with a pre-approved home loan offer, it is considered a soft inquiry and it doesn't affect your credit score and report.

How to minimise the impact of credit checks on your score

Hard credit inquiries can chip away at your credit score, but a few smart habits will help you keep the damage to a minimum. Whether you are shopping for a home loan, a car loan, or a new credit card, the strategies below can protect your score while you explore your options.

• Space out your credit applications. Submitting several applications in quick succession signals financial stress to lenders and can drag your score down. In Australia, most credit scoring models recognise a "rate-shopping window" - multiple inquiries for the same type of loan (such as a home loan) made within a 14-day period are typically treated as a single inquiry. Use this window to compare offers from different lenders without stacking up hard checks.

• Use soft checks to see your eligibility first. Services like ClearScore let you see personalised loan and credit card offers you may be eligible for based on a soft check, which does not affect your score at all. Eligibility results are indicative only - each lender makes the final approval decision. By checking your eligibility before you formally apply, you can avoid unnecessary hard inquiries from applications that are unlikely to be approved.

• Review your own credit report before applying. Checking your own report counts as a soft inquiry and has zero impact on your score. By reviewing your report ahead of time, you can spot errors, outstanding defaults, or other red flags that might lead to a rejection - saving you from a wasted hard inquiry.

• Dispute and remove unauthorised hard inquiries. If you notice a hard credit check on your report that you did not consent to, you have the right to challenge it. Contact the credit reporting bureau that holds the record and lodge a dispute. You can also dispute errors in your credit report directly through the bureau's formal complaints process. Removing an unauthorised inquiry can give your score a small but meaningful lift.

• Only apply for credit you genuinely need. Every hard inquiry stays on your Australian credit file for up to five years. Before clicking "Apply", ask yourself whether the product is right for your financial situation. Fewer applications mean fewer marks on your report and a healthier score over time.

Final words

Credit checks are crucial not just to review your own credit history but also to get approved for a new line of credit. Since hard credit checks can affect your credit score and report, you should only apply for more credit if you really need it. You should also keep checking your credit report regularly to ensure there isn't any hard check that was conducted without your consent. In case you do find a discrepancy, you can dispute errors in your credit report.

With ClearScore, you can get free credit reports and check credit score in just a few clicks. Take a look.