A credit check or a credit search is when a certain company checks your credit record to know your financial behavior. The company will not need your consent if they carry out a credit check on your credit report. However, they need to have a valid reason to do this.
One example of a valid reason to conduct a credit check is when you apply for a loan. The lender where you applied for a loan will conduct a credit check to know if you can fulfill your obligations. Two credit checks could be conducted on your report: soft and hard checks.
What’s A Hard Credit Check?
A hard credit check, or hard pull, is an inquiry by creditors or lenders if you apply for a loan or credit card. It helps credit and lending companies decide whether to approve or deny your application.
Since a hard inquiry is associated with credits, it will impact your credit score. Once a hard pull is done on your report, it will show up on your credit history for two years and reduce your credit score. That’s why it’s advised not to apply for multiple loans, as each of the lenders will conduct a hard credit check on you.
As a result, it will all show up on your credit history, which won’t be good for you. Plus, multiple hard inquiries will significantly decrease your credit score.
How Hard Credit Check Works
When you apply for a credit card or a loan, the company you applied to will conduct a credit check on you. This will let them know whether you are financially responsible and capable of repaying the debt you’re taking.
Once the hard inquiry is conducted, the company will get a full credit history report, including your credit score. And as a result, the inquiry they made will be added to the history, decreasing your credit score by 5 points.
It was mentioned that multiple loan applications would result in multiple hard inquiries, which won’t look good on your credit report. But with the FICO model, any hard inquiry within 45 days is considered one. It allows you to go rate shopping within 45 days without worrying about having multiple hard inquiries reflected on your credit report.
When you apply for a credit product that will conduct a hard inquiry on you, expect to receive more marketing messages from lenders. This is normal as credit bureaus sell marketing lists that a hard inquiry can trigger.
What’s A Soft Credit Check?
A soft credit check, called soft inquiry or soft pull, is when you conduct a credit check on your credit report. It also happens if anyone you authorize, such as a possible employer, checks your credit report.
Lenders or credit card providers can also do this type of credit check to check if you qualify for a preapproved offer.
A soft inquiry won’t affect your credit score but will still reflect on your credit report. Unlike hard credit checks, a soft pull will only be visible to you and could stay on your history for one to two years.
You don’t have to worry about it, as potential lenders, creditors, and employers won’t see it. It’s because the soft inquiry isn’t connected to any application for credit, and it isn’t relevant to them as the hard inquiry.
How Does Soft Credit Check Work?
Unlike hard inquiry, which is only conducted when you apply for a loan or credit card, soft inquiry happens when someone checks your credit report, although you didn’t apply for any loan or credit.
It doesn’t indicate great risk and doesn’t affect your credit report. Examples of when a soft credit check is:
- When you check your credit report
- If a lending or credit card provider checks your credit report for preapproved offers
- Your current creditor checks your credit report
- You submit a soft inquiry pre-approval with a creditor
- A potential employer checks your credit report for employment
Note that some applications could result in a soft and hard inquiry, such as opening a new bank account or renting an apartment. It’s advised that during these circumstances, you ask the company whether they will conduct a soft or hard pull on your credit report.
There’s No Need To Worry About Credit Checks
Credit checks are part of our lives, and we can’t avoid them. It can happen anytime and be conducted by anybody. But there’s nothing to worry about credit checks. A hard inquiry, for example, although it will impact your credit score, would be minor.
All credit checks reflected on your credit history will be deleted after two years. Therefore, it is only temporary. If you have nothing to worry about, you shouldn’t be bothered if someone takes a look at your credit report.