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Soft vs Hard Credit Checks: What's the Difference?

Soft vs Hard Credit Checks: What's the Difference?

When searching for loans, you may frequently hear the terms "soft vs. hard credit checks." These two checks can affect your credit score and the likelihood that you will be approved for a car loan, whether you are applying for a home loan or a car loan.

 

But how do soft vs. hard credit checks differ, and why should you care?

 

What is a Credit Check?

 

First thing’s first. A check and a search are the same thing. Different organizations call them one or the other but they have exactly the same meaning.

 

What is a Soft Credit Check?

 

For things like vehicle insurance, home insurance, and cell phone contracts, a mild credit check is applied. They are used to verify your identify and check your credit score. As part of their hiring process, some firms will also check your credit score.

 

Basic information, such as your payment history or the number of loans you may have, will be revealed via a gentle enquiry. Only the information requested by the entity making the query will be displayed.

 

A soft inquiry vs a hard inquiry will appear differently on your credit report. Most soft inquiries will only be available to you, depending on the credit reference agency you check with. They are obviously identified as a soft investigation if they are kept public.

 

As a soft inquiry is a cursory check that doesn’t involve a credit application, they do not affect your credit score.

 

What is a Hard Credit Check?

 

A hard inquiry occurs when you apply for credit and the lender runs a credit report and credit score on you. Anyone who looks at your report, not just you, will see a hard inquiry.

 

Your whole credit record, including prior loans and lenders, any missed payments, denied credit, and anything else the company wishes to examine, is displayed in a hard inquiry.

 

A hard inquiry, which has a clear connection to a credit application, may lower your credit score. This is due to the possibility that submitting a loan application could affect your debt-to-income ratio and affordability, two important components of your credit score.

 

How Credit Score is Calculated

 

Why Does It Matter?

 

Your credit score might be impacted by the sort of inquiry made, thus it matters. The key distinction between soft and hard credit checks is that a soft inquiry has no effect, whereas a hard inquiry does. Your credit score will be impacted if there are too many hard inquiries made in a short period of time.

 

In order for potential lenders to know that you have applied for credit, a hard inquiry is put on your report. This is intended to notify creditors when a person applies for a lot of credit in a short period of time, both to assist the applicant and to help safeguard institutions against fraud and loss.

 

It also shows a potential lender whether you have been refused credit in the past so they can check further.

 

Thanks for reading! Hopefully this article answered some questions for you. If you have any more questions, please contact us here.

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