Credit plays a huge role in modern life and you may need access to it for a number of different reasons, whether this is a credit card, buying a home or leasing a car. When applying for different financial products that involve lending, your provider will try to establish whether you are responsible with your money, and therefore a ‘safer’ person to lend to. In trying to discover that, lenders can take out hard and soft credit checks and understanding the differences between them can be crucial for keeping your long-term finances stable and healthy.
A soft credit check is usually performed by a company as part of a general background check and may not look at your entire credit history. This is also the type of credit check that you get when you check your own credit report. A soft credit check is not visible to other lenders, which means that the check itself will not have an impact on your score or any applications for credit that you make, no matter how many checks are performed. Typically, utility providers and landlords will use this type of credit check when considering applications you make to them.
A hard check, meanwhile, will give lenders a more detailed look into your credit history and report, so that they can see current and previous credit agreements, along with how you have kept up with any repayments. Any hard credit check will leave a mark on your report and be visible to other lenders for 12 months, meaning that you should try to keep these searches to a minimum and only have them performed if you think that you will be approved. Having a large number of hard checks on your file could suggest that you are struggling, and you might be higher risk.
The best thing to do before having a lender perform a hard search is to check their eligibility requirements before applying, check your own report with a soft search and then take steps to improve your credit rating if required. If you have a low credit score and think you will struggle to get approved, you may be approved for a bad credit loan. These loans can help people get the credit they need if they would struggle to get approved elsewhere.
It is important to be aware of the different types of credit check so that you can take the right action, avoid negatively impacting your score and understand what is needed for you to get approved.