Soft and Hard Credit Check: Why Does It Matter?

In loans and financing, we often hear the terms hard and soft credit check. When we read loan guides for beginners, it is also often included. But what does a hard credit check and a soft credit check mean? 

Does it have something to do with our loan application? What does it have to do with our credit scores? 

Let’s further understand these two primary terms and know them better as we explain them each, including some common questions raised by potential and interested borrowers. 

Hard and Soft Credit Check Explained 

A hard credit check, or as others would like to call it, a hard pull, is conducted by many lenders to determine if your credit score and credit history can prove that you can pay for the loan that you have applied for. In short, the results of a hard pull inquiry can show your creditworthiness. At the same time, it can show lenders if you’re a high-risk borrower. 

Many lenders used hard credit check inquiries as part of their decision-making process. And since this type of inquiry needs total credit checking, reports are recorded in your credit history and can influence your credit score. 

Too many hard credit checks over a short span can be quite alarming to lenders as this can be understood that you need a lot of money, which shows you might have poor money management skills. 

Take note that hard pull reports stay in your credit history for at least two years. 

Popular Questions Asked By Many Borrowers About Hard Credit Inquiry

  • Who Does A Hard Credit Checking? 

Most of the time, hard credit checking is done by various lending and credit card companies. Moreover, when renting a place, your landlord will usually ask for this, handing you a form as written permission that you allow them to conduct a hard inquiry check. 

  • Can I avoid a hard credit inquiry? 

Well, it’s a yes and a no. It’s the former if you are conscious about your money management. This means knowing what loan application you don’t qualify for, so you won’t apply it. 

It’s the latter if you’re applying for large purchases such as a mortgage or car loan, as you can’t avoid hard inquiries when you apply for them. To minimize or control the number of hard inquiries on your credit report, remember or take note of your actions when shopping for these large purchases. Make a smart approach to minimize the negative impact on your credit report.

  • How can I control the effects of a hard credit inquiry? 

If you’re “rate shopping,” especially when you’re on a hunt for the right mortgage or car loan, you can ask the agencies to group all these inquiries into only one report. With this, there will only be a single report that will show in your credit history. 

Another way to reduce the effect of a hard credit inquiry is to space them out. As a rule of thumb, no more than one application over three months, especially if it’s a different loan application. 

Soft Credit Check  

There’s a little difference a soft credit check has when compared to a hard credit check. With soft credit checks, lenders, employers, and other interested parties can review and check your credit. However, there’s one thing that sets them apart— soft credit checking doesn’t have to do with any lending decisions. Therefore, a soft credit check does not affect your credit score in any way possible. 

Some employees conduct a soft credit check to see if you are fit for a job, specifically if you’re applying for financing or anything related to a money management job. Even insurance companies conduct a soft pull (another term for it) to provide accurate quotes that will fit your financing capacity.

Popular Questions Asked By Many Borrowers About Soft Credit Inquiry 

  • What are the common soft credit inquiries? 

The most common soft credit inquiries are as follows: 

  1. Checking your credit report
  2. Pre-approval offered by credit card companies
  3. Credit monitoring services
  4. Insurance company quotes
  5. Credit checks by your potential employers
  6. Landlord credit checks 
  • Why does a soft credit check not affect my credit score? 

The simple answer is that a soft credit check does not have a direct connection for a credit or a loan application. Therefore, FICO or VantageScore doesn’t track these reports. A lender or a credit company might conduct a soft pull as a part of the pre-approval process, but it’s different when completing a credit application process. 

Takeaway 

The bottom line is that a hard credit inquiry and a soft credit inquiry are both important factors when it comes to your credit score. However, one thing that sets the two apart is that hard credit inquiry can affect your credit scores while soft credit inquiry can’t. That’s why you must manage your finances properly, as too many hard credit inquiries can be bad for you. Make sure that you space out your loan applications and only apply for those you deem you qualify.

This article has been financially reviewed by Ben Heir, CFA Last Updated on September 15, 2021 by Prab Premkumar.

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Author

Philip Horton

Philip Horton

Philip is the Head of Content for OnlineMoneyPage. He is responsible for researching and writing articles. He is also one of the co-founders of OnlineMoneyPage.

He is an experienced finance professional with a proven track record in the field of financial advisory. He has a proven history of success in clients’ personal finance planning. His core competencies include: Financial Planning & Analysis, Budgeting & Forecasting, Financial Modeling, Income Streams Improvement, and more.

Philip holds a MA degree in financial management and is a CFA and CFP charterholder.

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