If you’ve ever applied for credit, you must be aware of the concept of credit checks. When you apply for credit, lenders pull a credit check on you to assess your creditworthiness. There are normally two types of credit inquiries – a hard credit check and a soft credit check. But do they affect your credit rating?
Read on to find out more about credit checks and their impact on your credit score.
A soft credit check is an inquiry into your credit report initiated either by you or an organization running a background check. Financial institutions that offer pre-approval on credit also use soft credit checks to assess applicants.
Fortunately, a soft credit check does not leave a trail on your credit score. Your credit score helps lenders assess your creditworthiness based on your credit history and outstanding debt obligations.
When a lender or creditor requests an inquiry into your credit report through credit bureaus, it may get recorded on your file as part of your credit history. What impact this inquiry leaves behind depends on whether it was a hard or soft credit check. Here’s how they’re different:
Hard credit check: A hard credit check is an inquiry initiated into your credit report by a lender or creditor. Lenders, mortgage providers or credit card companies conduct this check to assess your past credit behaviour. Your credit report holds your credit history, details of defaults, your credit accounts, public record information such as CCJ or a decree, and details about your account provider. A hard credit check can leave a footprint on your report for a little over two years. It also slightly lowers your score, but only by a few points. However, you can improve your credit score by making regular repayments towards your debts.
Pro tip – Avoid applying for too many loans within a short span. Hard credit inquiries stay on your report for two years. Too many probes within a short period can make you look like a high-risk borrower.
Soft credit check: Unlike hard credit checks, a soft credit check can be initiated any time, not just when you apply for credit. Do your recall the credit card offers in your junk mail? Well, those offers are based on a soft credit check. Every time you request a copy of your report from a credit bureau or a potential employer runs a background check on you; a soft check inquiry is initiated. While all soft credit checks get recorded on your credit report, the information isn’t visible to everyone. A soft credit check isn’t linked to an application for new credit, so you can rest assured since this type of inquiry has no impact on your credit score. This inquiry is only meant for reference or pre-approval purposes and is thus, not disputable.
Each hard credit inquiry into your report usually stays on it for about 2 years. This is accompanied by a slight drop in your credit score. A soft credit check, on the contrary, doesn’t count as a negative item in your credit score and is not visible to all inquirers. Credit scoring models do not factor in soft credit checks because they aren’t associated with a credit application.
If you spot a hard credit inquiry in your report for credit that you don’t recall applying for, it would be wise to investigate further. You can raise a dispute for hard inquiries that occur without your approval. It could be a sign of identity fraud wherein a person stole your identity to apply for credit. Here’s when a hard credit inquiry is disputable:
Here are some steps that you can take to manage your credit inquiries better:
You do have some control in this area. Here are 8 ways to help you improve your credit score:
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