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What is the Difference Between Soft and Hard Credit Checks?

Managing your personal finances is not the most engaging of tasks, and yet it is central to the strength, safety and comfort of your household – and especially so in today’s difficult climate. With interest rates remaining high, borrowing money can be expensive and daunting.

What is the Difference Between Soft and Hard Credit Checks?

In charting a course towards financial literacy, you will encounter a number of challenging and even confusing topics – many of which surround the world of credit reports and credit scores. If you’re seeking financial products or assistance, knowing your way around these processes is key. With this in mind, let’s answer a simple question: what are credit checks, and what are the differences between the key types?


Credit Reports, and Credit Checks

Credit checks are a common and essential part of both tracking your credit history and accessing financial products from financing contracts to mortgages. Credit reports are drawn up by independent credit reference agencies (CRAs) like Equifax or Experian, and are used to evaluate the level of risk you might pose to lenders.


There are two kinds of credit check associated with credit reports: soft checks, and hard checks. Soft credit checks are tantamount to viewing the basics of an individual’s credit report – equivalent to checking your credit score personally, after creating an account with a CRA. Hard credit checks, meanwhile, are more comprehensive – being a complete check of your credit history and viability for credit, as directly undertaken by a lender. These differences beget different impacts, as we are about to explore.


Impact on Credit Score

Soft credit checks, being a surface-level check of your credit report, do not have any impact whatsoever on your credit score. Soft credit checks include when you view your own credit report, and when lenders perform pre-checks regarding eligibility for their financial products. No one but you can see soft credit checks on your file.


Hard credit checks, however, are permanently and visibly recorded on your credit report. These can impact your credit score as a result, where multiple hard credit checks in a short period of time suggest you are a higher risk to lenders.


Minimising Impacts

The impact of hard credit checks, particularly when followed by rejections for credit, can create an even worse position from which to attempt accessing credit. Debt consolidation loans are available to those with bad credit, and as such can be used to satisfy existing debtors and improve your credit score over time. This can effectively work to reverse the impact of hard credit checks on your credit score.


As a general move, any attempt to reduce the number of hard credit checks undertaken in a short period of time is worthwhile. Bad credit loans as suggested above are one route, while pre-qualification tools can utilise soft checks alongside other processes to approve you for credit. 


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heyduggeek
May 20

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