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Hard vs soft credit checks

When considering a loan application, a lender will perform a credit check. There are two different kinds: hard and soft. Here we discuss the differences and how they may affect you.

It is important to know the difference between the two and understand how each can affect your credit score, in order to avoid losing credibility through multiple searches.

When applying for a loan, you’ll invariably come across two terms - ‘hard credit check’ and ‘soft credit check’. Most of us have come across these terms at some point but you might be unsure what they might mean and how they can affect the success of your loan application.

Loan applications usually start with working out the amount you need to borrow and how much you can afford in repayments. Then, looking at the range of potential lenders. During the process of comparing lenders by applying for quotes, the lender may run checks on your credit history.

Lenders conduct credit checks at this stage to assess your chances of approval and examine the level of ‘risk’ of getting their money back. It’ll help them decide whether or not to lend to you and let them estimate the repayment rates and terms you may be offered. There are two types of searches lenders can make – a ‘hard credit search’ and ‘soft credit search’.

Types of credit searches

To improve your chances of securing a loan, there are two types of credit checks you should be aware of. Learning about these can improve your chances of improving your credit score and securing a loan.

A credit check or search happens when information from your credit report is viewed to gain a better understanding of your financial history. The main purpose of a credit report is to help lenders decide whether or not they should offer you finance. For this reason, lenders require access to your report whenever you apply for a loan or any other type of finance.

With your consent, lenders can conduct either a soft or hard credit search when accessing this report. These are used at different times, for various purposes. Knowing when each one is likely to be conducted and the differences between them is important, as both can affect future loan applications.

What is a soft credit check?

A soft credit check occurs when a lender makes an initial inquiry about your credit history. While a record is made, it won’t affect your credit score - only you can see any instances of soft credit checks on your report, meaning they are not visible to other lenders.

There are several instances when soft credit checks are conducted and recorded. They are used by lenders to assess your eligibility for certain products when you first apply for a quote, and to double-check any information supplied in the quote application form. Soft credit checks sometimes make up part of a pre-employment background check when applying for a job, or if you are checking your own report on a credit checking website.

What is a hard credit check?

A hard credit search is when a lender conducts a full examination of your credit report in order to make a loan decision. Hard credit checks are recorded on your report, can be seen by other lenders and may affect your credit score depending on how many checks have been made. The more checks, the more chance of your score lowering.

Effects of hard credit searches

Hard checks are carried out when you apply for a loan, credit card or mortgage or open a new utility account (including a mobile phone contract).

Lenders do this to get a good understanding of your financial history and to assess how reliable a borrower you will be, in terms of making repayments. A hard credit search can negatively affect your credit score, so it can be worth asking if a hard credit check will be carried out before applying for a quote.

Responsible borrowing should have little or no effect on your credit score, but if you have a history of submitting frequent loan applications, it can be damaging. Generally, any record of hard credit searches will stay on your report for around two years.

What’s the difference between a hard credit search and a soft credit search?

The most important difference is that a soft search doesn’t show up to lenders and other companies on your credit report, while a hard search does. This means that soft credit searches will not have an impact on your credit score, as they will only be visible to you.

Hard credit checks can affect your credit score as each one leaves an imprint showing instances when you have applied for credit. If there are a lot of these, it can signal to lenders that you rely heavily on borrowing. Many instances of hard credit checks in a short period may suggest that you are in financial difficulty and therefore a higher risk. Spreading out applications can reduce the impact of hard credit searches, as can only applying for finance when you are eligible.

Advantages of a soft credit search

A soft credit search doesn’t show up to other lenders when they view your credit report. Eligibility checkers use soft searches, which means you can easily compare lenders without each one leaving a mark or having a negative impact on your credit score. This is usually to check that the information provided in your application is correct and ensure the quote they provide is accurate based on your credit history.

Rather than having to go through the full application process, risk being rejected and end up with a mark on your credit report, soft credit checks allow you to search and apply for quotes to find the most affordable loan. You can also check your own credit report to assess its current state before applying for a loan, without it having an impact on your score.

By understanding what information is on a soft pull credit report and the differences between hard and soft credit searches, finding the right loan product can become an easier process.

Improve your credit rating with further tips and information available on our Know How blog.


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