For many people, credit is something that becomes essential at some point in their lives. Consider a scenario where you want to take out a personal loan to pay for medical or educational expenses. Perhaps you and your family are ready to take the next step and buy a home. In such a case, you will likely need a home loan. Other examples of credit requirements include buying a car, doing some renovations at home, or perhaps opening up an account with a furniture store. – Pyramid Credit Repair
A credit check is part of the process a company uses to provide approval for such an application. You are also able to request your own credit report. This can be helpful to give you an idea of why a specific credit application was declined.
There are different types of credit checks that can be done. This mainly includes a soft and a hard credit check. Soft credit checks are often used initially to provide pre-approvals, as well as when you decide to draw your own credit report. We take a closer look at what a soft credit check is and factors you should consider regarding this type of check on your credit record.
What Is Soft Credit Check?
Your credit score is important. Creditors use this as an indication of how creditworthy you are. If you have a bad credit score, then you will likely be declined. On the other hand, a good credit score paves the way to a new home, car, and other credit applications you may find important. According to Value Penguin, the average credit score for Americans is 695.
For many people, however, a good credit score is something to be desired. There are many people who fall closer to the lower margin of the credit score zone. Unfortunately, this means these people will not be able to gain access to credit when they need it.
Understanding what factors affect credit score is important. A credit check itself can sometimes have a negative effect on your credit score.
This brings us to a soft credit check. This is a type of credit check that is commonly performed. In fact, in most cases, a soft credit will be done – there are only certain cases where a company will need to proceed toward a hard credit check.
A soft credit check is the type of report that you get when you contact a company to draw your own credit record. This type of report shows an overview of certain factors related to your credit report itself. It will generally also provide a view on your current credit score.
There are some scenarios where a company or employee will request a credit check on your profile. In these cases, a soft credit check will also usually be performed.
A soft credit check is sometimes also called a soft credit pull or a soft inquiry.
You need to authorize a third-party to perform a soft credit check on your profile.
The majority of cases where a soft inquiry is performed will not be related to a credit application. A creditor will generally require a more in-depth look into your credit record. Thus, they will require a hard credit check instead.
The great thing about a soft credit check is that it will not have a negative impact on credit score. There are be multiple soft inquiries on your credit record, and it will not cause your credit score to decline. This is the reason why many people will use a soft check when you have not applied for credit.
There will usually be a separate section on your credit record for soft pulls performed on your profile. These will generally not be taken into consideration by companies who analyze your credit record. Thus, soft pulls are unlikely to have an impact on your ability the chance of being approved for a new credit application.
When Is A Soft Credit Check Used?
There are several examples of scenarios where a soft credit check may be used. The main example would be requesting your own credit record.
If you go to TransUnion, Experian, or any other credit bureau, you are able to request a report on your own credit record. This is a useful way of acknowledging what is going on in your credit record. You can also identify any potential errors and report this to the appropriate credit bureau.
Each credit bureau has its own criteria for requesting a report. Furthermore, the frequency by which you can request a report differs from one bureau to the next. For example, with Experian, you can request a free credit report every month.
When you request a credit report from one of these bureaus, a soft check is done on your record. This means the check will not make any significant marks on your credit record since you did not apply for any credit. When a mark is made on your credit record, it usually indicates an increased risk – you should not apply for too many credit applications at once.
There are other scenarios that call for a soft inquiry on your credit record, too, of course. Some examples include:
· Existing creditors may perform a routine soft check on your credit record.
· Some creditors may perform a soft credit check in order to provide you a pre-approval on a credit application.
· Some companies may also use a soft pull on your credit record to see if you qualify for specific offers.
You should also take the fact into consideration that renting an apartment may come with a soft check too. There are some cases where the rental agency will conduct a hard check on your account. The same goes for opening a new bank account. Some banks will perform a hard check on your record, while others would rather turn to a soft credit pull.
You can, of course, ask the company what type of credit check they will do. Any company that asks your permission to do a credit check should be able to tell you whether they are going to perform a hard or soft pull on your credit record.
By understanding the type of check done on your credit record, you have a better idea of what to expect. You can educate yourself on which credit checks will impact your credit score.
How Does A Soft Credit Check Affect Your Credit Score?
When a company asks your permission to perform a credit check, you should ensure you have the knowledge on how that action will affect your own credit score. Be sure to first ask the company about the type of credit check that they will do.
If the company reports a soft pull will be done, then there will usually be no need to worry. This type of check only provides the party requesting the data an overview of your credit report. A copy of your credit score will also be attached to the report.
There is a specific section on your credit report that particularly lists any type of soft inquiries that have been conducted on your profile.
Apart from an entry in this section, a soft check that is done on your credit profile will not have any other effects. You will not experience a reduction in your credit score. These inquiries will also only be stored in this specific section. They will not be mentioned at any other part of your credit record.
Soft Credit Check Versus Hard Credit Check
Both soft and hard credit checks are used. When you apply for credit, want to rent a new home, or need to draw your own credit report – you need to understand which of these will be used. They are different, and each comes with its own pros and cons.
Understanding the difference between a soft and a hard credit check is crucial. You should educate yourself on the differences before you authorize any third party to conduct a credit check on your profile. Understand how each will impact your credit score too.
A soft credit check, as previously explained, does not have a significant impact on your credit record. You will notice that there is a copy of these soft checks stored on your report. They go into a specific section called “Soft Inquiries.” Apart from this, the soft credit check will not have any other impact on your credit record.
A hard credit check is different, however. This is the type of credit check that a creditor performs when you make a new application. It is a full credit check that draws your score and the history on your credit record. The hard credit check allows the creditor to gain a more accurate look at your current credit health. It also provides an overview of your payment history, as well as a history of the previous checks that were done on your profile.
This information allows the creditor to make a more accurate judgment on whether or not you can truly afford the new debt you have applied for. The information also serves as an important part of the risk analysis. The creditor needs to consider the fact that giving you credit puts them at risk. If you fail to pay, they may lose money.
The creditor will usually have a team that considers the risk profile and payment history. This allows them to determine whether or not to grant you approval on the application that you have made.
The problem that you may have with a hard credit check is the fact that it affects your credit record. First, a hard credit check will cause you to lose a few points. Many of these checks may cause you to lose about five credit points at a time. Thus, making multiple applications for credit can quickly cause your credit score to decline.
Another factor to consider is that a hard credit check also goes onto your credit record. Any creditor who draws a report in the future will be able to see exactly where you have applied for credit. They will also be able to use this information, along with other data on your credit report, to determine whether previous creditors provided an approval or decline.
Multiple hard credit checks on your credit record are also considered a negative factor. This can increase the risks associated with your credit application at the next creditor. In turn, this makes you more likely to be declined for the application you submit.
Should You Be Worried About Soft Credit Checks?
When you notice a credit check will be done on your profile, you may feel concerned. Many people have heard that a credit check affects their credit score. This is true, but only in some cases. Thus, it is not always necessary to be concerned when a third party needs to conduct a credit check on your profile.
As mentioned before, a soft credit check does not make a significant mark on your credit profile. A hard credit check causes you to lose a few credit score points – this does not happen with a soft credit check. The soft credit pulls still reflect on your credit report, but in a specific section that generally does not affect the risk profile calculated when a creditor analyses your report.
There are also many reasons for a soft inquiry to be performed – not always related directly to a credit application. For example, an employee may want to perform a soft credit pull in some cases. This is sometimes necessary when applying for a position at a financial firm. You also have the right to see your own credit report – if you request it, you are doing a soft credit pull from an appropriate bureau.
How To Manage Your Credit Inquiries More Effectively?
If you feel concerned about your credit record, particularly in terms of your credit inquiries, then there are a few tips you can follow. These tips will help you understand how to manage your own credit record more effectively. It can also ensure you avoid getting a decline in your credit score due to a significant number of inquiries done on your credit profile.
First all, always make sure that permission is asked for a credit check. Read the fine print of forms that you are asked to sign – especially if you are asked to provide your social security or identification number.
When you are asked permission for a credit check to be done, make sure to ask the third party important questions. The most important question to ask is what type of credit check will be done. The third-party requesting permission needs to provide you with these details. They will also tell you that a hard credit check or a soft credit check will be performed. Other names may be used too – look for the “hard” or “soft” terms in the names they use.
You should also try to limit the number of credit applications you make. When you apply for credit, some companies will only conduct a soft pull on your record. This will not bring your credit score down, but it will still reflect at the “Soft Inquiries” section on your credit profile. This will only provide for a pre-approval. A final hard credit check still needs to be done later on – which will reflect on your credit score and report.
There are also creditors who will directly move to a hard credit check if you apply with them for the first time. If you make multiple applications in a short period of time, you will start to lose a lot of credit points.
Instead, consider looking at the companies that can provide you with the credit solution you require – then opt for only one. Make an application with them and await a response. If the company declines your application, then ask them for details. This can help you understand why you were declined – perhaps you need to improve something on your credit record, instead of submitting your application to more companies.
A credit check is conducted when you decide to apply for credit or when you request your own credit record. There are two primary types of credit checks that can be done on your record. This includes a soft credit check, as well as a hard credit check. A soft credit check will generally not have a serious impact on your credit report. It will also not affect your credit score. It is important to understand what a soft check is and what it can be used for.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes