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Hard And Soft Credit Checks

Hard And Soft Credit Checks: What Do They Mean For You?

Getting your head around all the jargon that comes with managing your money can leave you with brain-ache. And we’re not about that life at all. That’s why we’ve made it our mission to help make some of the terms you see bandied about in the finance world a bit easier to understand.

In this article, we’re tackling the different types of credit check that can be carried out on you: hard checks, and soft checks.

Let’s start at the beginning: what is a credit check?

A credit check is when a company requests a copy of your credit report to take a look at your financial history and behaviour. Companies can’t do this willy nilly just because they fancy seeing your details, they have to have a legitimate reason, for example if you’ve applied for a loan with them. If a company is carrying out a credit check on you, they will probably have told you about it, although they don’t have to, and don’t always need your permission, either.

When a company runs a credit check on you, they’ll get your credit report from one – or more – of the three credit reference agencies in the UK. These are Equifax (who we at CredAbility work with), Experian, and TransUnion. Companies usually use your credit report to see both how much you’re using credit at the moment and how much you’ve used in the past, as well as how you manage your borrowing and if you’ve made all your payments on time. They might also check if you’re financially linked to anyone – for example someone you have a joint account with – and check their credit history, too.

But, there are two types of credit checks that companies can carry out: hard credit checks, and soft credit checks. So let’s press on and learn about how each one works, and what they mean for you.

What’s a hard credit check?

A hard credit check is when a company makes a complete search and assessment of your credit report, and a record of their search is placed on your credit report so that any other company who searches your credit history will be able to see it.

Because hard credit checks are something other companies can see, how many of them you have, and how often they’ve been carried out are factored in when your credit score is worked out. Having a lot of hard credit checks in a short space of time can make it look like you’re perhaps biting off more borrowing than you can chew, and cause your credit score to drop. This could make it more difficult for you to get approved for credit if you need it.

When do hard credit checks happen?

Hard credit checks most commonly happen when you submit an official application for a loan, credit card, or other type of finance agreement. But, they can also be carried out by utility companies and even mobile phone providers if you want an arrangement with them where you pay for your services monthly.

Hard credit checks can also be carried out by debt collection agencies. This can happen if you fall behind on your payments to one of your accounts, and the company you owe decide to transfer ownership of your account to a debt collection agency. To set up your account with them, the debt collection agency will carry out a hard credit check on you – this is one of the times credit checks can be done legitimately without you having to give your permission.

What’s a soft credit check?

A soft credit check is also a search of your credit report, but the record of the search is placed on your credit report in a way that it’s not visible to other companies who search your report – only to you. They’re included in your credit report so that you know exactly who has been requesting a copy of your credit report

Because only you can see soft searches on your credit report, they don’t count towards your credit score. You can have as many as you like, and they will never make your credit score drop.

When do soft credit checks happen?

Soft credit checks can happen in a few situations. They’re the type of credit check that’s run when you take a look at your own credit report, or if a company searches your credit report as part of an identity check.

But, the main use of soft credit checks is when you’re comparing different credit products, like credit cards, loans and mortgages, for example when using an eligibility checker to see if you look like a good fit for a particular card or loan, without having to submit an application to find out. At CredAbility, this is why we think soft credit checks are pretty great, because they can save you from unnecessary hard credit checks if it turns out you’re not eligible for a card or loan you were looking at!

What makes hard and soft credit checks different?

The main difference between hard and soft credit checks is that hard credit checks can be seen by other companies who search your credit report, and soft checks can’t. This means that hard credit checks do count towards your credit score, and may cause it to drop, but soft credit checks will never have an impact on your credit score, no matter how many you have!

How to reduce the impact of hard credit checks on your credit score

Because every time you have a hard credit check registered on your credit report, it counts towards your credit score, a few hard checks can have a big impact. For this reason, it’s a good idea to think carefully about how often you apply for credit, and keep it to a minimum. Planning out when you apply so you can space out applications you make, and making sure you have a good reason for making the application – and so incur a hard credit check – can help you to manage the impact of hard credit checks on your credit score. For example, if you’ve just taken out a new phone contract, perhaps you can wait a few months before you decide to apply for that new credit card, just to space out the hard searches.

As a general rule of thumb, we recommend trying to keep the number of hard credit checks that are carried out on you to one or two per year. But, of course, if you’re in a situation where more hard credit checks are necessary, then you shouldn’t avoid them, or be afraid of the impact to your credit score. As long as you’re aware of what’s going on and can spread out any additional credit checks, and stay on top of other things that count towards your credit score, like making all your payments on time and staying within your credit limits, you’ll limit the impact and your credit score will soon get back on track.

Using soft credit checks to your advantage is another good way to limit the number of hard credit checks that are carried out on you. Rather than submitting an application – and going through a hard credit check – straight away when you need credit, a soft credit check can allow you to see if you’re eligible, and sometimes how likely you are to be approved, too. Knowing if you look like a good fit for a particular card or loan can help you decide if it’s worth submitting an official application and going through the hard credit check. If you’re not likely to be approved, then finding this out from a soft credit check will have saved you the impact of a hard check on your credit report!

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