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 pull, 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 Inquiries vs. Hard Credit Inquiries

There are two ways a financial institution can determine your creditworthiness. A hard credit check (also known as a hard credit inquiry) is performed by traditional lenders, and it provides a full insight into a borrower’s credit report. 

A soft credit check (also known as a soft credit inquiry) only provides basic information about a borrower’s credit report, but it is enough for lenders to determine the risk of lending money. 

Both of these types of inquiries on your credit have their strengths and weaknesses, and we can’t say that one type of credit pull is better than the other. However, keep in mind that a soft credit inquiry can be performed on a borrower’s credit report without their knowledge.

Does a Soft Credit Inquiry Affect Your Credit Score?

The answer is no, soft inquiries don’t affect your credit score. This is one of the main differences between hard inquiries and soft inquiries. 

Keep in mind that even though hard credit 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 hard credit checks. All these hard inquiries on your credit score are then considered one credit check.

Hard inquiries will stay on your credit report for two years. You can remove hard inquiries from your credit report if hard pulls were made by mistake or with your permission.

Do Soft Inquiries 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 major credit bureaus — Equifax, Experian, and TransUnion. It is important that you check your credit 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.

There are different credit scoring models. The most common credit scoring model is the FICO credit score. The FICO score is a numeric value on a scale from 300 to 850, with a higher credit score meaning better financial health. 

The Bottom Line

Financial institutions perform credit checks for many reasons. Most often, they need to look at your credit history when you are applying for a loan or a credit card, but also as a part of some rental applications. Hard and soft inquiries 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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