Pre-approved versus No Credit Checks

Pre-approved versus No Credit Checks

Did you know that pre-approved was not the same as no credit check. Preapproved seems to be the new buzzword to circumvent regulations.

Historically, no credit checks were exclusively reserved for loans, whilst pre-approved was the word used for "credit cards". Over the last year or two, those lines seem to become blurred, and it's now common to see adverts for "no credit check credit cards" and "pre-approved loans". What is the material difference?

Preapproved

Preapproved will mean that checks have been don't upfront. These checks will come in two forms: the first type of review will be done using internal data. For example, you may bank with TSB, TSB will have been building up a profile picture for all of their customers, how they operate their accounts, how many times they use their overdraft, their monthly income in some monthly outgoings etc. All of this data will be used to build a profile that means they can reach out to their customers and make pre-approved offers best on that picture.

Other lenders will sometimes use what is known as a "soft check". Soft Checks are applicants will apply in principle, it doesn't mean that they are applying for credit, only asking if they would be approved. This means that lenders are not required to leave a hard marker on the applicant's credit file. In our opinion, it is pushing the rules into a moral grey area. Credit reference agencies have a duty to report all credit applications. We do not see a material difference in someone asking for a soft check than someone applying for credit. But these are the two types of soft checks that are available when lenders say they can "pre-approve" offers.

So who is offering these types of pre-approved offers?

Capital One, was one of the first credit card providers to offer a pre-approved enticements customers. Customers can apply for a decision in principle; then if approved, they can then apply for the card. Capital One is a reputable company with a good background. They've been involved in the U.K.'s sub-prime lending market for around 20 years. Credit limits will often start around £200, the longer customers with them, the higher that credit limit will become over time.

Aqua Credit Card, Aqua will provide a soft check solution to credit card applications. Normally approval will come within 60 seconds, Aqua is also an excellent alternative to a hard credit check.

No Credit Checks

Lenders will not look at your past activity; they will only assess your current affordability. They will not look at CCJs, defaults, late payments etc. Instead, they will determine your incomings and outgoings and how much you get paid each month compared to how much you spend each month. If you're getting paid more than your spending, the chances are that you will be eligible for one of these types of loans.

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