Soft Credit Check
Soft Credit Check
A soft credit check or a soft inquiry is performed by financial institutions to determine the creditworthiness of their customers. It is referred to as ‘soft’ because these credit checks do not affect the borrower’s credit score, in contrast to hard credit checks, which may have a negative impact on your credit score.
What Is a Soft Credit Check?
A credit check is done by banks and other financial institutions to see the borrower’s credit history and evaluate their creditworthiness. When performing a credit check, financial institutions calculate the risk of borrowing money to you, and how likely you are to repay any potential debt.
Credit checks are mostly performed when applying for a loan, but they can be done in some other situations, such as when applying to rent an apartment.
Based on a credit check, a bank decides whether to give you a loan, but also what terms to offer you. For instance, borrowers with an excellent credit score can get a lower interest rate when applying for a loan.
Soft Credit Checks vs. Hard Credit Checks
There are two ways a financial institution can determine your creditworthiness. A hard credit check is performed by traditional lenders, and it provides a full insight into a borrower’s credit report.
A soft credit check only provides basic information about a borrower’s credit report, but it is enough for lenders to determine the risk of lending money.
Both credit checks have their strengths and weaknesses, and we can’t say that one is better than the other. However, keep in mind that a soft credit check can be performed on a borrower’s credit report without their knowledge.
Does a Soft Credit Check Affect Your Credit Score?
The answer is no, a soft credit check doesn’t affect your credit score. This is one of the main differences between hard credit checks and soft credit checks.
Even though hard inquiries aren’t a big part of overall credit score, too many loan requests within a short period may be a signal for lenders that a borrower might not be balancing their finances well.
However, there are exceptions. For instance, when a borrower is searching for a mortgage, student loan, or a vehicle loan, they can perform multiple credit checks. All these hard inquiries are then considered one credit check.
Do Soft Credit Checks Appear on Your Credit Report?
You don’t have to worry about soft inquiries, as they do not show up on your credit report. However, soft credit checks are recorded, but they are usually only viewable to you and have no negative impact on your credit score.
In contrast, hard inquiries are all recorded on your credit report and can be seen by any lender given authorization to view your credit report.
What Is the Difference Between a Credit Score and a Credit Report?
A credit report is a comprehensive document that contains a borrower’s entire credit history. It is created by credit reporting agencies, and it goes back as far as seven years. A credit report contains vital information such as credit utilization, outstanding debt, payment history, hard credit inquiries, if you have ever declared bankruptcy, and more.
You can view your credit report once a year from all three credit bureaus — Equifax, Experian, and TransUnion. It is important that you check your report every year, and report if you see anything unusual.
A credit score is a three-digit numerical representation of a borrower’s creditworthiness. It takes into consideration all the things from a credit report and then combines it to give a numerical value.
The good thing about credit score numbers is that they make it easier for borrowers to compare and understand the state of their finances. You don’t have to be a financial expert to understand a credit score, just look at the numbers and see how they compare.
The most common credit scoring model is the FICO score. The FICO score is a numeric value on a scale from 300 to 850, with a higher score meaning better financial health.
The Bottom Line
Financial institutions perform credit checks for many reasons. Most often, these checks occur when you are applying for a loan or a credit card, but also as a part of some rental applications. Hard and soft credit checks are used to determine a borrower’s creditworthiness.
Hard inquiries can take days, and they affect your credit score. Soft credit checks take less time and don’t impact your credit score.
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