Are you in the market for a car? Are you worried about your credit history and if it might affect your purchase? Let us help you decide between hard and soft checks to make your deal a little sweeter.
What Is a Credit Inquiry?
Also known as a credit search, a credit check is when a company analyses your financial behavior based on the information on your credit report. If you have applied for a loan, a lender takes the liberty to go through your credit history to determine whether it will lend you or not.
There is always an option without a credit check that will help you get out of the predicament altogether. Banks and building societies, credit providers, utility suppliers (e.g., gas, water, and electricity) perform credit checks. They study such data as your name, address, any other financial associations under your belt that might hinder your payments.
There are two types of credit checks – a soft search and a hard search. It is time we deep-dived into them.
What Can You Expect in Terms of a Soft Check?
A harmless first glance at a credit report is a soft search. While it may seem non-intrusive and insignificant, every soft check is recorded. You will see if a company has performed a soft check on your credit report, but it is not visible to the public.
The following types of credit checks are examples of soft inquiries.
- Personal credit checks
- Pre-approved credit offers
- Insurance applications
- Account reviews by current creditors
- Employment applications
What Can You Expect in Terms of a Hard Check?
Whether you have applied for a credit card, personal loan, or mortgage, the lender will perform an in-depth investigation of your credit report. It covers your financial history and allows your lender to analyze your previous lending activities. If you have any negative remarks, overdue payments, or debt collections, they will stay on your credit report for a few years. And that’s what a lender will find out during a hard check.
The following types of credit checks are examples of hard inquiries.
- Loan applications (mortgage, auto, student, personal, etc.)
- Credit card applications
- Requests for credit limit increases
- Applications for lines of credit
- New utility applications
- Apartment rental applications
- Collection agency skip tracing
What’s the Difference Between Hard and Soft Checks?
Here are three key differences between a soft and hard check:
- The primary difference between the two types of credit checks is that hard checks leave a visible and traceable footprint on your credit report. This means that the other lenders will have access to this data and can make decisions accordingly without performing a hard check for themselves. If you are eligible for any credit applications, that will also be accessible to them.
- While soft checks can be performed without your consent, hard checks require you to give written consent to approve of any inquiries made on your name.
- Soft checks do not affect your credit score, but hard checks lower your credit score by a few points. It isn’t a big deal in the long run, but too many inquiries lead to the impression that you are a high-risk customer.
Please note that applying for financial aid multiple times within a short period is a sign of struggling times. Lenders are awfully cautious and prefer not to risk lending to someone who cannot pay it back.
What Can You Do Before an Inquiry to Improve Your Chances?
If you are worried about how hard inquiries might affect your credit score, you have a few options to prepare to get a better rating. Before you apply, ask the lender which check will be required to secure funds for your loan. Since the decision is very subjective, you might be lucky enough to come across a lender who runs a soft check to assess your creditworthiness.
Limit your hard credit inquiries as you don’t want to undercut your credit score by applying with multiple lenders. Adding to that, overextending from a credit perspective may hurt you financially. However, if you have to apply in multiple places, cross-check the hard inquiries you initiated to avoid credit card fraud.
Tips to Improve Your Chances of Passing a Check
What can you do to improve your credit score?
- Check and re-check whether your information is updated and correct.
- When looking for finance, use an eligibility checker. They give you an estimate of what is likely to be approved after performing a soft search.
- Speak to a potential lender to learn what kind of search is likely to be carried out. This will help you prepare beforehand and improve your chances of getting a loan.
- When applying for loans, create a strategic timeline that is infrequent and sporadic.
- Keep your credit utilization under a maximum threshold.
- Make your payments on time every month.
Soft and Hard checks are difficult to avoid unless you pick an option without a credit check. Your credit scores will play a major role in your financial well-being, so it is advisable not to opt for payments you cannot afford. Lenders tend to approve applications from people with a strong credit rating and provide them with the best possible terms and rates. Before all of that, however, check which inquiry will do your bidding. Good luck!