Credit searches: hard credit checks vs soft credit checks

• What is a credit check?
• What is the difference between a soft and hard credit check?
• How accurate are soft credit checks?
• Can lenders see soft searches?
• What does a hard credit check report show?
• Do hard credit checks affect your score?
• Ways to improve your credit score.

What is a credit check?

A credit check occurs when lenders look at your credit report to see your credit history. By looking at your credit report lenders will assess how much you have borrowed and how reliable you are at making payments. You will see two main types of credit checks on your credit report: a soft search and a hard search (also known as a full credit check).

What is the difference between a soft and hard credit check?

A soft credit check occurs when a lender can see basic information about your credit history, it will show things such as name, address, whether you are employed and how much you earn. Soft credit searches aren’t linked to any credit application, so they don’t influence your credit score. However, if your credit file shows that there has been a substantial amount of soft searches, lenders will query this and could be considered when it comes to the final decision.

Note: If you are shown to be ‘pre-approved’ for any credit, this usually means that a soft check has been carried out, and you have been selected as eligible for the product, but not necessarily at the rate advertised.

A hard credit check is where a financial institution, such as a credit card provider or loan lender, requests your credit file during the application process. The lender might see when you last applied for credit, whether you were accepted, and all existing accounts you hold, including the payment history. Typically, a lender would look at your excess income to see if you could afford to make your repayments, how much credit you already have and whether you have missed any payments.

A hard credit search usually stays on your credit file for 12 months, whether you were accepted or not. Hard searches are visible to other lenders when checking your credit history, so will get taken into consideration on any future credit checks performed. If a lender can see many hard searches in a short period of time this may prevent you from being accepted as it can look like you may be in financial trouble.

How accurate are soft credit checks?

Soft checks look at the same data as a hard check, though not in as much depth, instead giving a general indication of your current credit file and financial situation. Soft checks are beneficial as they allow you to check multiple forms of credit eligibility before you apply, so you could compare credit cards without impacting your credit score Many comparison sites require you to input your personal information and e-mail to find potential offers, performing a soft check themselves for this. We don’t perform these checks however, having the information freely available for you to view.

Can lenders see soft searches?

In short, not always but yes. Depending on the type of search performed lenders can see soft searches on your credit file and may see things such as when you have applied for credit with a broker or if you’ve applied for a job recently, as an employer can carry out a soft check or a hard check as part of the recruitment process. Financial Institutions can perform a hard check on potential employees to make sure they are able to manage their own finances as it is an indication that you will be able to manage others.

What does a hard credit check report show?

A hard credit check should provide a full report on your financial history, showing all your finance applications, such as short term loans, bank accounts (with an overdraft facility) and mortgages. It also shows potential lenders how you have managed any previous borrowing, showing them the amounts borrowed and the repayment history, so they can see how reliable you are. It will show any missed, reduced or overdue payments, any debts that went to a collection agency, debt management, bankruptcy and any applications you have processed.

Do hard credit checks affect your score?

Yes, hard credit checks on your credit report could affect your credit score. Applying for credit could have a temporary impact and can make your score go down. As long as you make your repayments on time, this should steadily increase again, over time this should improve your credit score as you are proving that you can manage your finances.

NOTE: Bear in mind that multiple credit applications in a short time can be a red flag to potential lenders as it shows you may currently be struggling with your finances. It may also impact the interest rates that some lenders offer you, as you could be seen as more of a risk.

Ways to improve your credit score

We would suggest always keeping an eye on your credit report – if you don’t currently, we would advise comparing credit reports to find one that suits you. A few practical ways to keep your credit report healthy would be:

• Check your soft/hard searches monthly – you can view these on your report; in doing this, you can also help prevent identity theft if you see any unusual activity.
• Use the eligibility checkers – get an idea of your offers and shop around before taking a hard search hit to your score.
• Use a free comparison website – such as MustCompare – to find some offers without hurting your credit score or giving any personal details.
• Avoid going close to your credit limits on products like credit cards – lenders can see this, which may affect your ability to obtain future credit.
• Avoid credit card cash advances – Where possible avoid withdrawing cash from a credit card, apart from the higher interest costs these also will show on your credit file.
• Know your circumstances – a credit check should have less of an impact on someone with a longer credit history and more credit experience, so always think about your current score.

In Summary

Now you have more insight into how to protect your credit score by looking into hard and soft credit searches. Remember, a soft search is a good idea if you are wanting to look into your options before fully committing. A hard credit search should only be submitted when you are certain that is the lender you want to borrow from. Also, keep an eye on your credit report and always monitor the searches carried out against you – if you see anything you aren’t sure of, contact your credit report provider.