Consumers could save hundreds of pounds if they improve their credit scores. But according to a 2021 survey conducted by Experian, around 46% of people in the UK have never checked their credit report. Moreover, most don’t understand the difference between hard and soft credit checks, and what type of information they can cover regarding their finances. So, in this article we’re going to take a closer look at the differences between hard and soft credit inquiries.
- Why Are Credit Cards Needed?
- What Are Hard Credit Checks?
- What Are Soft Credit Checks?
- Can I Get Hard Checks Removed?
- Can I ‘Fail’ a Soft Credit Check?
- Final Words
In our list of ‘10 Easy Ways to Improve Your Credit Score’, we mention how building your credit history can be a good thing, but this should also be coupled with responsible credit management. A good credit score will allow you to get additional credit or extend existing ones. When lenders check your credit, they want to know how much you’re juggling, and how often you’ve paid your debts and bills on time — this is where hard and soft credit checks come in.
Hard credit checks are also known as “hard pulls” or “hard inquiries”. Upgraded Points explains that they are used to determine whether or not you’re eligible to be given a loan or credit. The most common hard inquiries will occur when you get rental, mortgage, auto, credit card, student, or personal loans. Usually, lenders, credit card companies, and landlords will request for them, and you will have to give authorisation.
Each hard check will be recorded on your report, so other companies will be able to see that you’ve applied for credit in the past. A hard inquiry could also drop five or so points from your score, but this usually disappears after around six months. Moreover, hard credit checks will stay on your credit reports for about two years, so applying for a handful of credit cards or loans within the span of a few months would make you seem like a high-risk customer.
A soft credit check refers to a review of your credit report, and mainly involves the same information as mentioned above. This includes lines of credit, loans, your payment history, and transactions that went to or are in collections. The main difference is that a soft credit pull doesn’t impact your credit score whatsoever, and your permission isn’t necessarily required to run these checks.
Additionally, they’re only visible on your own credit report, with the exceptions of insurance companies and debt-settlement companies. Companies perform soft credit checks as part of a background check. For instance, card issuers could check your credit to determine if you qualify for offers or rewards. Employers might also run a soft inquiry before hiring you. When you self-check your credit profile, it’s also always considered as a soft inquiry.
No, you can only wait for hard searches to drop off from your report after two years. This is why you should carefully consider when you fill out any applications for the sake of your credit health. Some lenders even use scoring models that give you more time to shop without incurring additional hard inquiries, which can be useful for loan comparison shopping. However, if you see a hard check from a company you don’t recognise, you may report this as fraud or identity theft.
This is also a no, as soft credit checks can occur without you actually applying for anything. You can use this to your advantage. According to Mortgage Introducer, more than 58% of young people aren’t aware that not handling their credit score could render them ineligible for lots of competitive deals. Requesting to view the soft inquiries on your credit reports will help you get a good idea of your standing.
With a strong credit history, you’ll have a better chance of getting your monetary applications approved. And remembering to be wary of hard and soft credit checks will be helpful to your financial well-being.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.