When you need a loan, credit card, or any other type of debt, the creditor or the lender might perform a credit check. Apart from lenders and creditors, you can also do a credit check yourself and any time a credit check is done, it is recorded as part of your credit history. Credit checks can be initiated even when you do not apply for credit and can be used as part of a background check or as a preapproval for a financial offer. There are two main types of credit checks; hard and soft credit checks. In this article, we are going to focus on soft credit checks, but we will also explore how they differ from hard credit checks and how they both affect your credit score.
Soft Credit Checks: An Overview
Soft credit checks, also called soft inquiries or soft pulls, are usually initiated as part of a background check. A good example is when a credit card company or a bank checks your credit to see if you qualify for a new type of credit card. Employers can also run a credit check before hiring you.
A creditor or financial institution can also check your credit score to see how well you are managing your debt or how your credit history looks like. Some of the information they may be interested in include if you have had any late payments and how many there are if any, as well as how much you have borrowed on each of the credit cards you own.
Soft credit checks do not impact your credit score. Also, depending on the credit bureau, they may or may not be listed on your credit history. Because soft credit checks are not connected to applications for new credit, they can only be seen by you when you request a credit report.
Hard Credit Checks: An Overview
Hard credit checks occur when there is a credit application. This can be a credit card, mortgage, or auto insurance. They can also happen for other activities where financial decisions are being made for or against you. Typically, you have to authorize a hard credit check.
Hard credit checks can lower your credit score by a few points for a few months and will likely stay in your credit history for about two years. In many cases, a single hard credit check will not have an impact on your ability to get additional credit or a loan.
However, you should be careful about getting many hard credit checks in a short period. Multiple hard credit checks signal to lenders and creditors that you might be a high-risk customer, as applying for additional credit shows you are either perpetually out of cash or can rack up a lot of debt in a short period.
Benefits of a Soft Credit Check
A soft check is great when you want to see how your credit score is being reported by different credit bureaus. Doing this also allows you to see what is impacting your credit score in addition to hard credit checks in case you are having a hard time getting a loan or financing.
A soft check can also reveal which lenders and creditors are thinking about extending your credit. If you have not applied for additional credit and see that someone has done a soft check on you, that is a good indication that they are thinking about getting in touch to offer additional credit. These inquiries will usually be found under the “soft inquiries” or similar subheadings.
A soft credit check also shows you if you are financially healthy enough to make a loan or credit card application. By doing this you avoid a hard credit check, which can impact your credit score, and get to save time, money, and the frustration of getting rejected if your credit history and finances do not look their best.
Soft and Hard Credit Check Examples
The main difference between a soft and hard credit check is whether you permitted for it to be done or not. If you gave your permission, that may be recorded as a hard check and if you did not, that may be reported as a soft check.
Some common examples of soft credit checks include checking your credit score, prequalified credit card offers, and insurance quotes or background checks during employment verification.
Common examples of hard credit checks include credit card, personal loan, mortgage, apartment rental, student loan, and auto loan applications.
There are many more instances where a soft or hard credit check might be done. For example, utility, internet, cable, and cellphone service providers often do a credit check.
Disputing Credit Checks
There is no need to dispute soft credit checks because they are authorized by you and do not have any impact on your credit score. However, it is important to check your credit reports often and be on the lookout for any errors, including hard credit checks that you did not authorize.
While you can contact the credit bureau in question to help you out, it is important to get in touch with a company that can help you deal with all the errors that come up. This website discusses how you can do this by helping you challenge negative marks on your credit reports. They will carry out a personalized assessment to see what the errors are and then discuss with you how to go about dealing with them.
Hard checks on your credit can be a sign of identity theft. It is therefore a good idea to look into these checks to make sure they are legitimate and at least find out what is going on.
Generally, you can only dispute unauthorized hard checks. Otherwise, you will have to wait about two years for authorized credit checks to be removed from your credit history.
Your credit score is very important to your financial health and wellbeing. This is why it is so important to not only build your credit, but also avoid factors that can impact your credit score, such as numerous hard checks in a short period. If you are not applying for credit, always opt for a soft credit check as it does not impact your credit score and can offer a lot of information regarding what is going on with your financial health.