A credit check, or a credit search, is when a lender looks at your credit profile to determine whether you are creditworthy, and to see how you handle your credit account payments.
Sometimes companies perform soft searches when you want to pre-qualify for a loan, credit card or when you want to see what you might qualify for.
We look at the difference between soft and hard credit searches and how soft searches may affect your credit score.
Soft credit searches refer to an initial review of specific data on your credit file. Companies use soft checks to assess the likelihood that your application will be accepted without fully examining your credit history.
Examples would be if you want to get insurance or credit quotations and want to see what your chance of approval is, or what rates you may qualify for, before you formally apply.
It's important to note that soft searches have no effect on your credit score as they are invisible to businesses. No matter how many there are, they are only visible to you.
Your credit report will also be soft searched when you compare loans, mortgages and credit cards with the major credit reference agencies, for example.
A soft credit search won't impact your credit score as it doesn't appear on your credit report and you are not formally applying to anything.
Lenders complete credit checks like this all the time, as borrowers pre-qualify to see their chances of approval. Some people also want to see their own credit score or how their credit record may appear to potential lenders, which is why they often have soft credit checks done.
No, soft credit checks do not appear on your credit report for providers to see, only you will be able to view soft searches. Soft credit searches are only initial searches on your credit file and it won't show up on your credit report or influence your score.
An example would be a 'mortgage in principle'. It allows you to look at the kind of mortgage you would likely qualify for based on your circumstances at the time.
Should you find a suitable deal, you can formally apply for a mortgage and that would trigger a hard credit check.
A hard credit search is when a company does a complete background check on your credit history. This typically happens when you formally apply for a credit product such as:
credit card application
student loan application
car loan application
mobile phone contract application
The main difference between soft and hard credit searches is that soft searches are not visible on your credit report but hard searches are.
Soft searches won't impact your credit score but hard searches can lower your credit score.
You can't fail a soft credit check because you are not applying for anything. A soft credit check just shows your chances of being approved for a credit application.
You can utilise soft credit checks to determine your eligibility for various types of credit without actually applying because they leave no trace on your credit report.
There is no cap on the number of soft checks you can have, and even if you have many searches done close together, they will never lower your credit score.
Even if soft searches are recorded, only you can see them. They don't create any negative mark on your credit file.
The majority of hard credit inquiries remain on your credit profile for slightly over a year and are visible to you and other people. Hard inquiries may remain on your credit report for a longer period of time, and inquiries made by debt collection agencies are accessible for a few years.
Any missed payments, for instance, may be visible for up to six years.
After a year, the majority of hard credit inquiries on your report won't have any impact on your credit file, but it's still a good idea to avoid any unnecessary hard inquiries.
Before submitting any official credit applications, always go for a soft search (pre-qualification) first, so you may determine your likelihood of getting approved for credit.
A hard credit search should never be done without your consent because it may harm your credit. Before you can move forward with an application for a personal loan, credit card, or something similar, you'll typically need to provide permission for the company to run a credit check.
However, some businesses with which you already have an account may perform a soft credit search without first getting your consent. Before promoting a new credit card or product to you, your bank or credit card issuer, for instance, might conduct a soft inquiry. Your credit score won't be impacted by this soft credit inquiry.
No, checking your own credit score is only seen as a soft search and won't impact your credit score. It's important to know what your credit score is so you can get an accurate picture of your financial health.
Some lenders and brokers carry out what is referred to as 'smart searches. They will ask you a few questions to get basic details like your name, employment details, and address, to check your eligibility before you formally apply for a credit card or loan.