Soft vs Hard Credit Checks: Understanding the Difference

Posted by on Dec 08, 2020 - Archived under Car Loan

You will hear the terms soft vs hard credit checks a lot when looking at loans. Whether it’s a home loan or car loan, these two checks can influence your credit score and how likely you are to be accepted for a car loan.


But what is the difference between soft vs hard credit checks 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?


A soft credit check is used for things such as car insurance, home insurance and cell phone contracts. They are used to check your credit score and to confirm your identity. Some employers will also check your credit score as part of their vetting process.


A soft inquiry will show basic things like your payment history or how many loans you might have. It will only show what the organization requesting the inquiry asks to see.


A soft inquiry will look different to a hard inquiry on your credit report. Depending on the credit reference agency you check with, most soft inquiries will only be visible to you. If they remain visible to everyone, they are clearly marked as a soft inquiry.


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 happens when you apply for credit and a lender will check your credit score and your credit report. A hard inquiry will be visible to anyone who checks your report and not just you.


A hard inquiry shows your entire credit report including previous loans and lenders, any missed payments, declined finance and anything the organization requests to see.


A hard inquiry is directly related to an application for credit so can impact your credit score. This is because an application for a loan may impact affordability and your debt to income ratio, two major factors in deciding your credit score.


How Credit Score is Calculated


Why Does It Matter?


The type of inquiry carried out can affect your credit score so it definitely matters. A soft inquiry has no impact while a hard inquiry does, which, for you, is the main difference between soft vs hard credit checks. Too many hard inquiries within a short amount of time and your credit score will be affected.


A hard inquiry is recorded on your report so any future lenders can see that you have applied for credit. This is designed to alert lenders to someone applying for a lot of credit in a short amount of time, both to help the individual in question and to help protect institutions from 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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