You expect to have a credit check made on you when you take out a loan or when you finance a new car – but did you know that some energy suppliers run a credit check on new customers too?
Energy supplier credit checks are commonplace in the energy industry, and particularly so with the ‘big six’, who are British Gas, Npower, SSE, Scottish Power, EDF and E.ON.
Smaller suppliers have also started to perform credit checks on new customers. First Utility for example require that you submit to a credit check before you can become a customer.
But why is this the case?
Why does my energy supplier need to check my credit rating?
The main reason why your energy supplier needs to check your credit rating is so that they can confirm that you are you. Your credit score also confirms that you actually live at the property where your energy will be supplied. This is to prevent fraud above all else.
However, the secondary reason why energy suppliers perform a credit check is to assess risk.
Quite simply, your energy supplier wants to know whether or not you are low risk or high risk before they enter into a contract with you, so that they can have some guarantee that you will not default on your energy tariff. This is key reason why you cannot choose to submit other forms of identification to an energy supplier, as opposed to submitting to a credit check to identify who you are and your address.
Will the credit check be ‘hard’ or ‘soft’?
There are two kinds of credit check and these are defined as ‘hard’ or ‘soft.
Hard credit checks can lower your credit score by a few points and they remain on your credit history for two years.
Soft credit checks will not affect your credit score and they are not ordinarily recorded on your credit history for more than a month.
What type of credit check your energy supplier performs depends on their terms and conditions. Usually, an energy supplier will be able to get what they need by performing a soft check, because such a check offers up your address and your name. However, energy suppliers have been known to perform a hard check, which is obviously troubling. As such, we strongly recommend you ask your energy supplier what kind of check they will perform before they do it.
What happens if I fail the credit check?
If you fail the credit check, then all is not lost. You will probably still be able to become a customer of said energy supplier, although you will likely have to put down a security deposit before you receive any energy – which may be a deal breaker. Security deposits are a grey area, however, and energy suppliers can set whatever rate they like. Usually, this is 10 or 20 percent of your estimated annual energy use. Or, it will be a few hundred pounds. Businesses can expect to pay much more however.
The silver lining here is that you will get your security deposit back in full at the end of your term, minus anything outstanding that you owe, so long as you can prove that you have paid your bills on time. Most people do however simply submit to a credit check, which is more convenient than handing over a deposit. Which should you do? That’s your choice. We do recommend you confirm with your supplier what type of credit check they will perform on you before agreeing to anything, though, to ensure your credit score is not adversely affected.
Is there an energy supplier with no credit check?
All energy suppliers carry out a credit check for pay monthly plans by Direct Debit.
The only way to get energy without a credit check is by opting for a credit meter – but even then, some suppliers perform credit checks.
The suppliers who do not perform a credit check for a credit meter are as follows:
– EDF – But you must repay any outstanding debt first;
– Ecotricity – No credit checks. They verify your identity by phone, email or letter.
– Co-operative energy – No credit checks.
– Better Energy – No credit checks.
– Spark Energy – No credit checks.
Please note that the above list was accurate as of 01/12/2016 (DMY). Please also note that the list only applies to credit meters, and not pay monthly plans. The above list was created by referring to the energy supplier’s terms and conditions, and by contacting them directly. We do not guarantee that any of the suppliers listed will or will not carry out a credit check.