What is the Difference Between a Soft Credit Inquiry and a Hard Credit Inquiry on my Credit Report?

A credit search is carried out by a company or an organization to gather information on your financial activities and history. Usually, you’ll be asked for your consent before they begin this process, but if they have a legitimate reason – for example, if you have applied for a loan with them – then they can proceed without asking you. These types of inquiries may be done by all kinds of credit providers, including banks, credit cards, utilities and mobile phone companies. Employers may also choose to do a background check as part of their recruitment process, because a good score can indicate that a person is responsible.

A soft credit check

During a soft credit check, a company will be able to view a limited amount of the information contained in your credit report. They do this to learn more about whether an individual should be accepted for a card or loan before conducting a full credit search.

Many soft credit checks are completed without your knowledge. For example, when you get mail offering a loan or credit card, the likelihood is that a company found that you would qualify for one of their products after a soft credit check search. They do this because it shrinks the pool of acceptable applicants and saves them the costs of approaching people who would not be suitable.

Although soft credit checks are noted by credit reporting agencies, these checks are not shown to potential lenders, so they will not influence any future applications you make or your credit score. For example, when you use Monveo you are able to see multiple prequalified loan offers only using one form securing you the best potential deal and during this process a soft credit check is preformed and your credit score is not impacted.

A hard credit check

When a company needs to view your complete credit report, a hard search is required. These are all listed on your file, so any other companies that carry out a hard check will see them and know where else you have applied for a product. This can lessen your chance of being approved for credit as well as lowering your credit score.

Most commonly, mortgages, credit cards, utilities and loan providers will all do a hard credit search. However, you must have committed to applying for the product beforehand, and they need your permission to proceed. If you do apply for one loan or credit card that does a hard credit check, this will most likely not affect a lender’s choice in approving your new loan or credit card.

However, if you apply to a lot of loan or credit card applications that have a hard credit search over a short period of time, you are damaging your credibility with lenders. This is because you are considered a high-risk customer, as they assume that you are having financial difficulties and are depending too much on borrowing money. If you have been applying for products that entail a hard search, then these are likely to remain on your report for up to one year, but debt collection searches will last longer.

Leaving a period of around three months between hard credit checks will work in your favor when it comes to loan and mobile phone contracts. If you are tempted to apply for more, then think about the negative effect on your credit rating and whether getting the product is a necessity. This is especially important if your credit score is hovering on the border between very poor and fair, or fair and good.

If you are unsure about how many hard credit checks you have made in the past, Monevo suggests checking your full credit score using Equifax, Experian or TransUnion.

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