Soft and Hard Credit Checks – What’s the Difference?

I think that in this day and age, most people are familiar with the concept of a credit score. Whenever you borrow money or apply for any form of credit, you will need to be credit checked. That is, the lender takes a look at your credit score and credit history and uses these to make a decision as to whether they are happy to lend you the money or not.

What many may not be so familiar with is the concept of hard and soft credit checks and what the difference between the two is. Here we attempt to distinguish the difference between the two and explain how they work.

Soft Credit Checks

You can think of a soft credit check as a quick peek at your credit report. A prospective lender or price comparison site may perform a soft credit check on you when you start browsing for a loan, to determine how likely you are to be accepted.

As it is just a quick peek at your credit report, it doesn’t necessarily reveal the full extent of your credit history – so can only be used to provide an indication as to whether you will be accepted, should you choose to proceed with a loan application. It can’t provide any guarantee of acceptance.

It is important to know that a soft credit check leaves no mark on your credit report. You can have as many soft credit searches as you like performed against you and they are only visible to you – no other company credit agency or prospective lender can see them.

Hard Credit Checks

A hard credit check is a complete review of your credit score and credit report. It is sometimes also called a full credit check. It reveals the full details of your credit and financial history to the company carrying out the search. A prospective lender will need to carry out a hard credit check on you before they agree to accept your application. Loan companies aren’t the only ones who carry out hard credit checks – they can also be completed by mobile phone companies before approving you for a new contract, or by a utility company.

The major distinction between soft and hard credit searches is that hard credit searches are recorded on your credit report and can be seen by any other credit provider who carries out a credit search on you. This isn’t necessarily an issue – unless you have too many hard credit searches over a short period of time. This can negatively impact your credit score for up to six months – so you should be very careful and aware of making applications for credit that will require a hard credit search.

One way around this may be to use price comparison websites that utilise soft credit searches when looking for a new loan or credit card – in order to find the providers most likely to accept your application before you push on and complete a full application that will require a hard credit check.

Why do Hard Credit Checks Impact my Credit Score?

It is all a question of perception to a prospective lender. Someone who is making several applications for credit may indicate to a credit provider that the applicant is acting out of financial desperation or is heavily reliant on credit. Understandably, either of these situations is something of a red flag to a lender – even if it is not a true reflection of the applicant’s intentions, motives or financial situation.

The onus, therefore, is very much on the consumer to be aware of the difference between hard and soft credit checks and when and why these are being carried out. If you haven’t already then it may be worthwhile signing up for a credit monitoring service such as Credit Karma (other similar services are available). These services are free and provide you with insight into your current credit score and credit report.

We hope this article has been useful and has provided you some clarity on the two types of credit searches. Feel free to leave any comments below.