Do business bank accounts do a credit check?

The short answer

Opening a business current account is not a lending decision, so it does not normally involve the kind of credit check you get when you apply for a loan. What every UK provider does is verify who you are, check that the business is real and screen for fraud and money laundering. Some providers use credit reference agency data to do that, which can leave a record on your file.

Whether that record matters depends on the type of search. A soft search is visible only to you. A hard search is visible to other lenders. Providers are not consistent about which they use for account opening, and the honest answer for any particular provider is in its own application page or privacy notice, not in a general rule. If it matters to you, ask before you apply.

The moment you ask for credit, the position changes. An overdraft, business loan or business credit card is a lending decision, and lenders typically run a hard search on the business, the director or both.

Soft searches and hard searches

Credit reference agencies record two broad kinds of search on your file. The labels vary by agency, but the distinction is the same.

The Information Commissioner’s Office, which regulates how credit reference agencies handle personal data, says searches on your credit file should not have a negative impact on your credit history in themselves. It adds the important caveat: lots of searches in a short space of time can imply that you are having problems getting credit, and that can affect a lender’s decision.

The ICO also notes that organisations do not need your consent to search your file, provided they have a lawful basis and have told you the search will happen. That notice is usually in the application screens or the privacy notice, which is where to look if you want to know what a provider does.

Opening an account vs borrowing

The clearest way to think about it is to separate the account from any credit attached to it.

• The account itself. A business current account with no overdraft is a place to hold and move the business’s money. The provider’s risk is mainly fraud and financial crime, so its checks focus on identity, address, the business’s registration and who controls it.
• An arranged overdraft. This is credit. The provider is lending you money, so it assesses whether you can repay it, which means credit searches.
• A business loan or credit card. Also credit, often with a personal guarantee from the director for a limited company, and almost always a hard search.

Monzo’s own overdraft page is a useful example of how explicit providers can be about lending searches. For limited companies it says Monzo completes a hard search on the company, which leaves a record on the company’s credit file, and a soft search on the applying director’s personal credit file, which does not affect their score. It says the hard search on the company is repeated each year when the overdraft is renewed. The same page describes limited company overdrafts as £500 to £5,000 at a representative 35.9% EAR (variable), with an annual fee and a personal guarantee.

Be aware that Monzo’s pages are not consistent on limited company overdrafts: another part of the same page says Monzo does not offer them to limited companies. Treat the figures as indicative and check what the app offers you. Sole traders can apply for an overdraft up to £3,000 at a representative 39.0% EAR (variable). All Monzo lending is subject to status. Our guide to Monzo Business overdrafts and loans covers what each type of business can borrow.

The practical point: you can open an account first and decide about borrowing later. Choosing a business account without an overdraft at the start keeps the application about identity rather than credit.

Identity checks are not credit checks

Most of what happens when you open a business account is “know your customer” work that banks and e-money firms are required to do. Expect to be asked for:

• photo ID and, with app-based providers, a selfie or short video to match it;
• your home address and how long you have lived there;
• for a limited company, the company number, registered address and details of directors and people with significant control;
• what the business does, where its money comes from and how much you expect to pay in.

Monzo, for example, says the person applying must be a director and that people with significant control are verified at sign-up. Our guide to the documents you need to open a business bank account goes through the list in detail.

Here is where the confusion comes from. The ICO explains that the information held by credit reference agencies is also used to verify the identity, age and residency of individuals and to help detect fraud and money laundering. So a provider may “search” an agency purely to confirm you are who you say you are. That is an identity check that happens to use credit data, not an assessment of whether you are creditworthy. It is normally recorded as a soft search, but if you want certainty, ask the provider.

Your company has its own credit file

A limited company is a separate legal person, and business credit reference agencies keep files on companies as well as on individuals. A company’s file draws on public records such as filed accounts and court judgments against the company, plus payment data that lenders and suppliers share.

Two things follow for directors:

• A brand-new company has a thin file. That rarely stops it opening a current account, but it does limit what it can borrow at first. Lenders often lean on the director’s personal history and a personal guarantee instead. Our guide to business accounts for startups covers which providers accept companies on day one.
• Sole traders do not have a separate file. A sole trader and the business are the same legal person, so business borrowing is assessed on your personal credit file.

If you have a poor credit history

A poor personal credit history is more likely to limit borrowing than to stop you opening an account. Missed payments and defaults tell a lender you might not repay credit; they tell a current account provider much less, because it is not lending you anything. That said, every provider sets its own acceptance rules and none is obliged to take you.

Practical options if you are worried:

• Check your own file first. The ICO says you can get a free “statutory report” from each of the three main agencies, Equifax, Experian and TransUnion. Fix errors before you apply rather than after a refusal.
• Apply for the account without an overdraft. Keep the first application about identity. Ask about credit once the account has some history.
• Look at app-based accounts. Their sign-up is designed around online identity verification, and many offer a free plan with no credit facility attached. The comparison of free business bank accounts shows what each one charges for.
• Consider an e-money account. Some business accounts are provided by e-money institutions rather than banks. They cannot lend, so credit is less relevant to their decision, but they still verify identity and screen for fraud, and they are not covered by the FSCS. Our guide to FSCS protection for business accounts explains the difference.
• Apply to one provider at a time. If any of them use hard searches, a cluster of applications is the thing most likely to make matters worse.

One thing not to do is run business income through a personal account indefinitely because you assume you will be refused. For a limited company that creates director’s loan account problems; for a sole trader it may breach your personal account terms. The guide on using a personal account for business explains why.

County court judgments

A county court judgment (CCJ) is the court formally deciding that you owe money, usually after someone sued you and you did not respond. According to GOV.UK, a CCJ or High Court judgment stays on the Register of Judgments, Orders and Fines for 6 years, and banks and loan companies use that information to decide whether to give you credit.

A CCJ against you personally weighs most heavily on borrowing. A CCJ against a limited company sits on the company’s record and can affect the company’s ability to get credit and trade terms. If a judgment is wrong, for example because you never received the original claim, GOV.UK explains how to apply to have it set aside. If you have paid, get the register updated before you apply for any credit.

Bankruptcy

Bankruptcy has specific legal consequences that go beyond a credit score. These are the points GOV.UK sets out for England and Wales; the rules differ in Scotland and Northern Ireland.

• Existing accounts. GOV.UK says your bank will usually freeze your accounts, and the bank decides whether you can carry on using them. It can also use money in your accounts to pay other debts you owe it (“set off”).
• Borrowing. While bankrupt you cannot borrow more than £500 without telling the lender you are bankrupt.
• Companies. You cannot act as a company director, or create, manage or promote a limited company, without the court’s permission. That matters directly for business banking, because providers such as Monzo require the applicant for a company account to be a director.
• Trading in your own name. You can trade again, but you must give the name you were made bankrupt under, as well as any business name, to the people you do business with. If you were self-employed when made bankrupt, GOV.UK says the business is very likely to be closed unless the trustee decides otherwise.
• When it ends. You are usually discharged automatically after 12 months, but GOV.UK says the bankruptcy can stay on your credit reference file for 6 years from the date of the bankruptcy.

We have not verified any provider’s policy on accepting undischarged bankrupts, so we will not suggest one. If you are bankrupt and want to trade, speak to your trustee or the official receiver before opening any account, and tell the provider your situation at application.

Before you apply

1. Download your statutory credit report from each main agency and correct anything wrong.
2. Make sure your company’s Companies House record is up to date: registered address, directors and people with significant control.
3. Read the provider’s eligibility page. Many accounts exclude some business types regardless of credit. Monzo, for example, takes sole traders and private limited companies (limited by shares) only. Our Monzo Business eligibility guide lists who it turns away.
4. Apply for the account without credit. Leave overdrafts and cards until the account is running.
5. Apply to one provider at a time and wait for a decision.

If you are opening a Monzo Business account and want the referral reward, note that it is only for people who have never opened a Monzo account before, including a personal or joint account, and who download the app, apply, add money and make a first card payment within 30 days. Our five-question bonus checker tells you whether you qualify, and the step-by-step guide to opening a Monzo Business account covers the application itself.