Article by Jamie Mackenzie Smith - 9th January 2019

What Credit Checks Look For When You Switch Utilities

As we get deeper into Winter, it’s inevitable that millions of consumers across the UK will end up using more energy and spending more on bills due to the colder weather and long stretches of darkness.

Aside from making your home more energy efficient, one of the most effective ways to keep those costs to a minimum is to switch to a cheaper energy provider or tariff. You just need to bear in mind that any potential switch – and how much you end up paying - could depend on the outcome of a credit check.

Given just how easy it is to switch providers these days, it’s hard to think of a valid reason not to at least look into doing so. You shouldn’t be put off by fear of rejection based on the credit check alone; even if you’ve been turned down for a credit card or overdraft recently, you might still find that you have no trouble getting taken on as a customer by a utility provider. The main reason for that is that while they very much still need to avoid ‘bad debt’, their requirements for passing a Credit check are far less demanding than that of most traditional lenders.

Despite this, MoneySuperMarket estimates that around a quarter of UK households have never switched, even though the number of online comparison sites now makes comparing and switching providers easier than ever.

Why do energy providers check your Credit history?

Gas and electricity is most commonly paid for in arrears, which means you are paying for a service after you’ve used it - usually either by Direct Debit or via a monthly/quarterly bill. For energy providers, this means that each month a small percentage of customers will pay late or go into serious arrears, having failed to pay for energy they have used.

The more customers miss payments, the more it ends up costing the provider, which often means the price they charge customers for energy increases to make up for this. Because the energy market is so competitive, higher prices could put off potential customers, so it’s easy to see why utility companies are keen to keep the level of outstanding debt to a minimum.

As a result, most energy providers will check your Credit Report to see if you have a history of missed payments, with a particular focus placed on any other utility accounts that you’ve held in the past. This information then forms the basis of a potential new supplier working out whether it believes you’re likely to have problems paying bills in the future if it accepts you as a customer.

There are other reasons that a utility supplier will check your Credit Report before opening an account, including a basic identity check, to verify that you live at the address you’re looking to connect, and to check if there is any information at other addresses you are linked to that you might not have disclosed.

It’s important to remember that credit checks carried out by energy providers or a comparison site won’t affect your Credit Rating.

Hard vs soft searches

There are two types of credit check that might be used by energy providers: soft searches and hard searches.

A soft search (also known as an enquiry search) only shows publicly available information, including your name, Electoral Roll status and whether or not there is any Court Information such as a CCJ recorded against you. This type of search is commonly used to prove that you are who you say you are on your application. Only you can see this type of search on your Credit Report and it won’t have any impact on your Credit Rating, regardless of how many appear.

A hard search (or application search) shows a more detailed overview of your Credit Report and includes much more detail, with the most notable addition being visibility of your full account history. This details any credit agreements (plus other accounts such as utilities and mobile phone contracts) you currently have, in addition to any that you have closed within the last six years. The way that each account has been managed, including whether payments were made on time each month will show, together with any record of arrears.

Only a small number of energy providers will conduct a hard search. Application searches can potentially be seen on your Credit Report by any lenders you approach for credit. Lenders can’t see who carried out an application search, so to their eyes it could be seen as another application for credit elsewhere.

There’s nothing wrong with having a small number of application searches on your Credit Report, and it won’t affect your chances for taking out credit, but be aware a large concentration of searches in a short space of time can make prospective lenders uneasy because it looks like you’re desperately trying to take out credit. We generally recommend making sure there are no more than 12 searches on your Credit File over the course of a year.

Can I be turned down following a credit check?

Even if you don’t meet an energy provider’s requirements following a Credit check, chances are it won’t point-blank refuse to supply you - but it is likely to determine how you end up paying for energy, as well as how much it costs.

The focus of the Credit check is likely to be different to that of a traditional lender, mainly because the amounts concerned are usually much lower, meaning that overall liability is also reduced.

Recent or regular missed payments on another utility agreement are likely to be more harmful than a few missed payments on a credit agreement in the eyes of an energy provider, since it is looking for evidence of how you’re likely to make repayments if they take you on as their customer.

If after a credit check an energy provider concludes that the customer represents a heightened risk of defaulting on payments, a prepayment meter might be required to ensure that energy is paid for before it is used. Energy use via a prepayment meter is usually more expensive, so should be avoided if possible but in some circumstances, it may be the only option.

Alternatively, some energy providers may ask for a security deposit before they take on a customer with adverse credit or ask that they find a guarantor who will take on the responsibility of making any payments missed by the customer.

Can I change energy suppliers without a Credit check?

Of the ‘Big Six’ utility companies, EDF is the only provider believed to not run a Credit check on new customers. Despite this, even if you do have an adverse credit history, it’s always worth checking to see if you could switch to a cheaper tariff.

Unless you’ve got severe negative payment markers or Court Information appearing on your report, you may well still be eligible for cheaper rates.

Remember: if you owe more than £500 to your existing utilities provider, you are required to reduce the amount you owe to less than £500 before you are able to switch, at which point your debt will be taken on by your new provider, and you will make payments to them instead.

What affects the outcome of a Credit check?

If an energy supplier is looking at your Credit Report to work out how likely you are to make repayments, there will be particular focus on your payment history (in particular whether you’ve made utility payments on time in the past), as well as checking for any Court Information and your presence (or lack of) on the Electoral Roll at your current and previous addresses.

To increase the chances of passing a Credit check when switching energy suppliers and possibly being eligible for some of the cheapest tariffs, it’s important to first check your Credit Report to make sure all your information is correct and to see what you’ll be assessed on.

Errors on Credit Reports are rare, but they do happen and could potentially derail your chances of getting on to a cheaper energy rate, as well as any future applications for credit.

If you haven’t already, you can try checkmyfile free for 30 days, and then for just £14.99 a month afterwards. You’ll get access to the UK’s most detailed Credit Report, with data from all three Credit Reference Agencies, plus expert help from our professionally-qualified Credit Analysts, should you need it.

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