Many consumers tend to shop around for a better deal when their current energy tariff is due for renewal. What many people might forget to consider are credit checks. Most energy suppliers tend to run a credit check before accepting a new customer for a specific type of tariff. Some customers may not be sure about what this means or how a credit check might affect them. If you know that you have a good credit score, this shouldn’t worry you. When your credit rating is low, you should consider what might happen if you attempt switching.
Why do energy suppliers need to run credit checks?
The primary reason that energy suppliers will give new customers credit checks is to confirm their identity. The process confirms that you do live at the property in question and that you are the person you’re claiming to be. They are also able to see your previous addresses and your credit score. This rating tells them whether or not you are able and actually likely to pay the money that you will owe them. They will usually only run a credit check if you apply for a post-pay tariff. The credit check prevents identity fraud and assesses your risk of defaulting.
What is a hard credit check and a soft credit check?
A soft credit check shouldn’t concern you too much. They usually occur as background checks and don’t affect your credit score. They will only be visible when you view your credit report. Some energy suppliers may only do a soft credit check. However, many energy suppliers run a hard credit check. This is more concerning, because a hard credit check can damage your credit score. These tend to happen when financial institutions are considering granting loans. It can lower your score even if the energy supplier will not actually be loaning you any credit.
How will a credit check affect my energy tariff?
Besides the effect on your credit score, the outcome of your credit check could affect your energy deal. The supplier may refuse to take you on as a customer if you have a poor credit history. Even if they do allow you to switch to them, it may be under certain conditions. They may ask you to sign up for a regular payment plan with estimated bills, provide a responsible guarantor, or even put down a deposit. Most commonly, they will require you to have a pre-payment meter instead. Paying for credit to top up a meter before you use the energy is the most expensive method of paying energy bills. However, if you reduce your credit score over time, you can try applying for a cheaper energy tariff again later, and it should be successful.
Which energy suppliers run credit checks?
Most of the major energy suppliers run credit checks when you apply for post-pay tariffs. British Gas will run a hard credit check to look at your credit history from the last 6 years. They will change a pre-payment meter for a credit meter as long as you are debt-free. At SSE you must successfully pass a hard credit check, pay off any outstanding debt, and pay a fee of £52 per credit meter. Npower may refuse to change your meter if you have more than £500 in debt. They may ask you to enter a payment plan or pay a security deposit of £250 per fuel, which they will refund after 12 months if you make your payments. Scottish Power might also charge a fee for changing meters. Following a credit check, you must be debt-free to pay by Direct Debit or set up a payment plan. You might also have to pay a lower security deposit of £150 per fuel. For most energy suppliers, you must have been a customer for 12 months to switch from pre-payment to credit. At E.ON this is only 3 months, but they might charge a fee for the credit check and meter installation. They will expect you to pay off outstanding debt. Even some independent suppliers like First Utility run credit checks and can request deposits.
Which energy suppliers won’t run a credit check?
The only one of the Big Six energy companies that doesn’t run a credit check is EDF Energy. They can refuse to change your meter from pre-payment to credit if you are more than £500 in debt. Usually, they will stipulate that you must have been debt-free for three months. They will remove and replace meters free of charge. Some smaller independent energy suppliers such as Ecotricity, Better Energy, and Co-Op Energy also do not explicitly run credit checks. Their terms and conditions state that they “may” run a credit check, but this is likely just to cover them in the instance that they do decide to run a check, rather than it being standard practice. Most energy suppliers will run some type of credit check if you apply for monthly payment plans such as Direct Debits. They may even run checks for credit meters. The only way to 100% avoid it is to stick with a pre-payment meter, which is likely to cost you more in the long run. Some suppliers like Utilita are pre-payment only, so you can just Pay As You Go.