You'll already know that financial institutions carry out a credit check every time you apply for a loan, mortgage, overdraft, or another form of credit – but do you know the difference between hard and soft credit checks? Let's cover what you need to know.
What is a credit check?
Lenders carry out checks against your credit report to understand your history with credit management and to get an insight into your financial behavior. Lenders can only do this under certain circumstances, such as when you apply for a line of credit. When you apply for a ‘hard' credit check as part of a finance application, it leaves a trace on your record. Lenders will check how many credit applications you have made in a period of time as too many may suggest that you are in financial trouble and, therefore less creditworthy.
What is a soft credit check?
It's common for customers to shop around for financial products to find out which might be the best for them. Comparison sites or credit eligibility checks are common examples of this. A soft credit search will be registered when you carry out this kind of search, but it doesn't leave any credit report footprint. This means that no third parties can see it.
What are the three main things to remember about soft credit checks?
- Soft credit checks don't usually affect your credit score. When a lender searches your credit history, they may just want a light check without having to make a more in-depth inquiry into your financial behavior. An example of this could be when you are carrying out a mortgage comparison search online for informational purposes. These searches may appear on your report, but they typically have no effect on your overall credit score.
- Soft credit checks can be taken without your permission; however, because these searchearen't't tied to credit applications, they usually are not visible on your credit report. There are a few exceptions to note, though. Insurance companies can sometimes see soft inquiries made by other insurance companies, and current creditors may be able to see soft searches made by debt-settlement companies.
- Employers may also carry out soft credit checks. Employers often carry out soft checks when you apply for a job. This is to ensure you are a responsible individual and to check that any financial difficultiwon'tn’t impact your performance at work.
This guide produced by Upgraded Points reports that almost a third of companies carry out credit checks on candidates, it'st’s important to be aware what'st’s involved. Employers can see information that includes your credit arrangements, outstanding balances, mortgages, bankruptcies, missed or late payments, and accounts that have ended up in collections.
This informatidoesn'tn't automatically influence whether or not you will get the job, but you may find that a decision is made in your favor if you show you are financially secure. Remember that your history is only saved for seven years, so earlier information will not be visible.
How to know what sort of credit check you will get
Wondering whether a lender will carry out a soft or hard inquiry? This comes down to whether you have given permission for the lender to check your credit record. The lender will also flag that their product and application process requires a credit check. You consent to this in your application, and a hard inquiry is made to decide whether or not you fit the lending criteriaIt'st's important to note that when you sign a financial agreement or contract, such as a mobile phone contract, loan application, mortgage application, or similar credit arrangement, you give implicit permission for a hard search to be carried out
If ydon'tn't give this permission, then the company should carry out a soft search. This could be a lender, utility firm, internet firm, mobile provider, cable provider, or employer. If you are wondering which type of search will be carried out on your credit report, it is sensible to ask the company involved before you progress to an application.
Remember that if the lender needs to carry out a hard search, it is good to limit the number of these that you have within a short period of time. Doing too many can flag up that you are experiencing financial difficulties and make it harder for you to successfully apply for credit or services.
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