What Is a Hard and Soft Credit Check?
If you are trying to get a loan, mortgage or even an apartment, talks of credit checks might arise. If your credit score is good, it can open a lot of opportunities for you. But if it is poor, you need to do some credit repair right away.
In order to determine if you are creditworthy, the company extending you the line of credit will run a credit check. The end result is a credit report, which tells them all they need to know about your financial behavior over a period of time. However, not all credit checks are this serious.
Basically, there are two types of credit checks that can be performed: a hard and soft credit check. Each one is different and has different implications on your credit score and financial future.
What is a Credit Check?
First, let us look at what a credit check is.
A credit check is when your credit report is requested by an individual or company. This report is obtained from a credit bureau, such as Equifax, TransUnion or Experian. Provided the individual or company has a valid reason for requesting it, the bureau will give it to them.
By looking at your credit report, they are able to ascertain your financial health. The biggest piece of information they are looking for is how well you manage your payments. The more current you are with your payments, the better.
For example, if you are applying for a loan at a bank, they will request your credit history. If there are indicators of too many delinquent payments (a huge sign of credit mismanagement), your loan might be declined.
Besides banks, other companies and people who can look into your credit report include:
- Landlords and letting companies
- Alternative lenders
- Mobile phone companies
- Utility companies (gas, water and electricity)
What is a Hard Credit Check?
A hard credit check is when a lender or credit agency pulls your credit report in order to make a lending decision. This happens when you apply for credit and requires your approval.
Each time a hard credit check is performed, it is recorded and stored in your credit report for all companies to see. This means that if too many hard credit checks are done within a short period of time (within six months), it can negatively impact your credit score.
Too many hard credit checks also tell lenders that you have applied for a lot of credit. Ultimately, this will only lower your chances of borrowing in the future. In the eyes of lender or other credit extenders, you become a high-risk customer in their eyes.
What is a Soft Credit Check?
In contrast to a hard credit check, a soft credit check is one that is done without your knowledge. A soft credit check does not impact your credit score in any way. This means there is no need to panic when you see soft credit checks on your report.
When companies and individuals request a soft credit check on you, it usually means they just want to see if qualify for certain offers. Soft credit checks are more for pre-screening than for making hard decisions in regards to credit.
Also, when you pull your own credit report, it is regarded as a soft search. This means you can request as many soft credit checks as you want without concern. Furthermore, only you can see how many soft credit checks were done in your report.
What Are the Differences Between a Hard and Soft Credit Check?
By now you have probably figured out the major differences between the two credit checks.
A hard credit check is done when you are applying for things like credit, utilities or phone a contract. Hard credit checks show up on your report and are visible to companies. Furthermore, they can lower your credit score.
A soft check is done usually when you’re checking your own credit score or when companies are trying to verify some minor financial details about you. While they show up on your credit report, they are invisible to companies. Plus, they do not affect your credit score.
As you can see, credit checks are extremely important, especially when you are applying for credit. A good credit score usually means you have more financial opportunities (good terms and rates) available to you compared to poor credit.
That is why it is important to conduct a soft credit check with one of the credit bureaus to find out about your score. If it is poor, you can take steps to improve it before applying for anything that requires a hard credit check.