Martin Lewis has shared an important rule for anyone with a bank account in the UK
Martin Lewis has set out an important rule for anyone holding a bank account in the UK. The money-saving expert shared the update during the latest full episode of the Martin Lewis podcast, which examined different types of bank credit searches that many people may not be entirely familiar with.
During the programme, he heard about the circumstances of a Barclays customer. Dan from Sheffield sought Martin’s guidance on switching bank accounts under a particular set of circumstances. He explained that he had previously heard Martin offer advice on the subject of switching bank accounts.
However, he said he was uncertain whether now was the right time to go ahead, as his mortgage deal is due to expire within the next six months, meaning he will need to apply for a new one. He noted that Martin had previously warned listeners that opening a new bank account places a so-called “hard search” on your credit file, which can have an effect on your credit score.
A hard credit check is a thorough examination of your financial history, whereas a soft credit check is merely a top-level overview, reports the Mirror. Hard checks are typically carried out when a company is lending you money or another form of credit. They may be conducted for a mortgage application, a student loan application, a personal loan or credit card application, a car loan application, or a rental application for a property.
Dan explained: “I have a very good credit score so I decided one switch might be an acceptable risk so I opened a Chase account, set up a couple of charity direct debits and shortly after switched to the Barclays account that offers a £200 switching bonus.”
Martin, founder of the MoneySavingExpert website and a regular on ITV and BBC, then clarified to listeners that Chase doesn’t offer overdrafts and therefore need to conduct hard searches, and that Dan is essentially proposing to use it as a ‘burner’ account. Barclays, in contrast, does perform hard searches, Martin noted.
However, Dan went on to reveal that when he checked his Monzo banking app, both the Chase and Barclays searches appeared only as soft searches. “Can you confirm whether opening a bank account results in a hard search or a soft search, or does it depend on the account? Can I continue to switch willy-nilly without fear of it affecting my mortgage application?”
A credit report will display which companies have conducted credit checks on you. According to Barclaycard’s website: “If you’re planning to take out a loan or apply for a credit card, checking your credit report is a smart way to ensure you haven’t had too many hard credit checks in a short period of time. Since this might harm your chances of being approved.”
Martin responded to Dan saying: “‘What a very interesting question and there is an unknown in here.” He said he would ask his staff to look into Barclays’ policy on the matter. He went on to explain: “So in general terms, most bank account applications will do a hard search, because a bank account has an overdraft and an overdraft is a credit product and when you apply for a credit product, in most cases a hard search is used.”
While there is no requirement to do so and lenders are able to carry out a soft search, the majority of banks opt for a hard search, he noted. Chase UK, which does not offer an overdraft facility, uses a soft check that essentially serves as an identity verification, he added.
Martin explained that a credit file, such as the one visible on Dan’s Monzo app, does separately distinguish between soft and hard searches. He said: “Soft searches you can see but it doesn’t tend to affect your creditworthiness – can’t affect your creditworthiness. Hard searches you can see and do affect your creditworthiness.”
He said he would have anticipated Barclays carrying out a hard search, but was uncertain as to why this had apparently not been the case in Dan’s circumstances. He advised: “But what I would strongly in your mortgage position advise you to do is to consider that all bank account applications, unless you know they do a soft search, will do a hard search, and therefore could have an impact on your creditworthiness.”
According to Barclaycard’s website, a hard search takes place when a firm requests a copy of your complete credit report. It states: “Unlike soft searches, a hard credit search will leave a mark on your credit report. So if you’ve applied for credit, other lenders will see it if they do a hard credit search.
“They also see if you were accepted or declined. Typically, any credit or loan application will stay on your report for up to two years.”
You can listen to the podcast episode in full here, or browse other podcasts of his here.
