What is the difference between a soft and hard credit check?
3 October 2023
By Joy Pearson
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When it comes to financial matters, particularly those involving credit, understanding the nuances can be crucial. Two terms that often arise in this context are 'soft credit check' and 'hard credit check'. Both have their uses and implications, and it's vital to differentiate between them to make informed decisions. In today's post, we explore both types of credit checks, what they are, how they differ and when and why they are used.
A soft credit check, also known as a soft inquiry or soft pull, is a review of your credit report that does not impact your credit score. This type of inquiry can be initiated by various parties, including creditors, employers, and even yourself for personal credit monitoring. Once common use of a soft credit check is pre-qualification for financial products, such as loans or credit cards. Lenders perform soft inquiries to assess your creditworthiness without committing to a full application process. This allows you to see what offers might be available to you without affecting your credit score.
Some employers may conduct soft credit checks as part if their hiring process, especially for positions that involve financial responsibilities. This helps them evaluate financial stability and trustworthiness. Individuals can initiate soft credit checks through credit monitoring services. These checks enable you to keep a watchful eye on your credit report for any changes or potential issues such as identity theft or errors.
On the other hand, you've got a hard credit check. Now a hard credit check, also known as a hard inquiry or hard pull, is an in-depth review of your credit report requested by a lender or creditor. Unlike any soft inquiry, a hard inquiry can have an impact on your credit score. When you apply for a new credit card, loan, or mortgage, the lender will typically perform a hard credit check. This inquiry helps the lender assess your creditworthiness and determine the terms of the credit they are willing to extend.
Landlords and property management companies may conduct hard credit checks when you apply to rent a home. This helps them evaluate whether you are a reliable tenant in terms of financial responsibility. In some cases, utility service providers, such as gas, electricity, or telecommunication companies, may perform hard credit checks when you apply for their services. This is often more common for postpaid services.
The most significant distinction between soft and hard credit checks is their effect on your credit score. Soft inquiries have no impact, while hard inquiries can lead to a temporary decrease in your score. Soft inquiries can occur without your explicit permission and are often used for background checks or pre-qualification. In contrast, hard inquiries require your consent and are typically linked to credit applications. When a lender or creditor performs a hard credit check, it typically means you are applying for new credit, such as a credit card, or mortgage. Your credit score may drop slightly due to the credit application, and this effect can last for a few months.
Soft inquiries can happen regularly and without limitations. You might have multiple soft credit checks in a short period without any adverse effects on your credit score. They are a useful took for various purposes, including personal credit monitoring. Hard inquiries should be used judiciously because they can impact your credit score. Multiple hard inquiries within a short time frame can raise concerns about credit-seeking behaviour and potentially lower your credit score further. Lenders and creditors may view this as a sign of financial distress or overextension of credit.
Understanding the key differences between soft and hard credit checks empowers you to make informed financial decisions and manage your credit effectively. Whether you're exploring credit options, monitoring your credit report, or applying for new credit, knowing when and why these checks are used can help you navigate the credit landscape.