What Is Soft Credit Check?

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 this case, you will likely need a home loan. Other examples of credit requirements include buying a car, doing some renovations at home, or even opening an account with a furniture store. – Pyramid Credit Repair

A credit check is part of the process that a company uses to provide approval for such an application. You are also able to request your own credit report which can be helpful and give you an idea of why a specific credit application was declined.

There are different types of credit checks that can be conducted. Soft credit checks are often used initially to provide pre-approvals, as well as when you decide to draw your own credit report. Here we will take a closer look at what soft credit checks are and factors as to why you should consider using this type of check on your credit record.

What Is Soft Credit Check?

Your credit score is important as creditors will use this as an indication of how creditworthy you are. To put this into perspective, if you have a bad credit score, then the likelihood of being declined will become more prominent. On the other hand, a good credit score can pave the way to a new home, car, and other credit applications you may find important. To help provide clarity on what the average credit score is, Value Penguin reported that 695 is the overall mean for Americans in general.

For many people a good credit score is something to be desired, however, there are many people who fall closer to the lower margin of the credit score zone. Unfortunately, those who appear to be on the lower end of the scale may struggle to gain credit as lenders may see them as a liability, so it’s important to keep your credit as healthy as possible to avoid this from happening.

Understanding what factors affect credit score is also important as credit checks can sometimes have a negative effect on your credit score depending on the severity of its findings.

This brings us to a soft credit check. This is a type of credit check that is commonly performed. In most cases where a soft credit will be done, there will only be a small number of cases where a company will need to proceed towards 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 and will generally provide an outlook 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 usually be performed. It’s also very important to note that a soft credit check is sometimes called a soft credit pull or a soft inquiry so please be mindful when these terms are being used interchangeably so you do not get confused. Not only this, but you also 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 it will not be related to a credit application as creditors will generally require a more in-depth look into your credit record. This inevitably means 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 your credit score. Additionally, there are multiple soft inquiries on your credit record which, fortunately, will not cause your credit score to decline and 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 that are performed on your profile. However, these will generally not be taken into consideration by companies who analyze your credit record as soft pulls are unlikely to have an impact on your chances 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. For instance, the main example would be to request your own credit record through companies such as TransUnion, Experian, or any other credit bureau where you are able to request a report on your own credit record. This is a useful way of acknowledging what is going on with your credit record. Along with this, 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. Conversely, when a mark is made on your credit record, it usually indicates an increased risk so 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. Some of these examples can 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 with 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 into consideration that renting an apartment may come with a soft check and there are other cases where the rental agency will conduct a hard check on your account as well. Likewise, the same goes for opening a new bank account where 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. Additionally, 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 should have a better idea of what to expect which means you can educate yourself on which credit checks will impact your credit score more than others.

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 sufficient knowledge on how that action will affect your own credit score and be sure to ask the company about the type of credit check that they will conduct.

If the company reports a soft pull will be partaken, then chances are there is no need to worry. This type of check only provides the party that is requesting the data for an overview of your credit report where a copy of your credit score will also be attached to the report.

There is a specific section on your credit report that lists any particular 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 and you will not experience a reduction in your credit score. Moreover, these inquiries will only be stored in this specific section and will not be mentioned on any other part of your credit record.

Soft Credit Check Versus Hard Credit Check

When you apply for credit, want to rent a new home, or need to draw your own credit report, it’s important to understand when a soft or hard credit check will be conducted as they are both different, and each come with their 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. Not only this but understanding how each will impact your credit score should be a necessity as opposed to being nonessential.

A soft credit check, as previously explained, does not have a significant impact on your credit record. Furthermore, you will notice that there is a copy of these soft checks stored on your report as 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, on the other hand, is quite different as it 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 which allows the creditor to gain a  deeper insight into your current credit health. In addition to this, it also provides an overview of your payment history, as well as a history of the previous checks that were performed 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 as the creditor will consider the fact that giving you credit puts them at risk of losing the money if you are unable to repay the debt that has been lent.

The creditor will usually have a team that considers the risk profile and payment history. This allows them to determine whether or not approval can be granted on the application that you have made.

The problem that you may have with a hard credit check is that it affects your credit record and will cause you to lose a few points. As well as this, many of these checks may cause you to lose about five credit points at a time thus making multiple applications for credit can cause your credit score to rapidly decline.

Another factor to consider is that a hard credit check also goes onto your credit record and any creditor who draws a report in the future will be able to see exactly where you have applied for credit. In addition, 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.

Having a number of hard credit checks on your credit record is also considered a negative factor as 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 as many people have heard that a credit check can affect their credit score. This is true, but only in some cases. So, it’s not always necessary to be concerned when a third party needs to conduct a credit check on your profile as chances are it is just protocol

As mentioned before, a soft credit check does not make a significant mark on your credit profile. Whereas a hard credit check causes you to lose a few credit score points. This isn’t the case with a soft credit check as 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 which is not always directly related to a credit application. For example, an employee may want to perform a soft credit pull in some cases such as applying for a position at a financial firm. You also have the right to see your own credit report  so 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 and can also ensure you avoid getting a decline in your credit score due to a significant number of inquiries done on your credit profile.

Firstly, always make sure that permission is asked for a credit check and 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: such as what type of credit check will be done? As the third-party requesting permission will need to provide you with these details. Likewise, they will also tell you that a hard credit check or a soft credit check will be performed but it’s also vital to be wary of other names that may be used in reference to these discussions, so always look for terms that refer to“hard” or “soft” when being discussed further.

You should also try to limit the number of credit applications you make as when you apply for credit, some companies will only conduct a soft pull on your record. Although this will not bring your credit score down,  it will still be reflected under the “Soft Inquiries” section on your credit profile. This will only be provided for a pre-approval. A final hard credit check still needs to be conducted later on down the line 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, so 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 make an application with them and await a response. If the company has declined your application, then ask them for further details as to why it was rejected. This can help you understand why you were declined and even more so tell you what needs to improve on your credit record, instead of submitting your application to more companies.

Conclusion

Credit checks are 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 which are both known as soft credit checks,  and hard credit checks. A soft credit check will generally not have a serious impact on your credit report and will not affect your credit score. It is important to understand what a soft check is and what it can be used for and how it differentiates from a hard credit check.

 

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