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soft credit check

Understanding the Impact of a Hard and Soft Credit Check

When it comes to maintaining a healthy credit score, understanding the difference between a hard and soft credit check is pretty important. Credit checks are necessary when applying for financing, it is a view of your overall credit history and health. It shares your “creditworthiness” with the lender and helps the lender determine if you are a risky borrower.

A lender typically request a credit check from the 3 major credit reporting agencies, which are Transunion, Equifax and Experian. Each credit agency will have their own way of scoring your credit history and the credit score can range from 300 – 850 FICO.

What is a Credit Check?

Whether it’s a hard or soft credit check, each type serves a distinct purpose in the realm of credit assessment. A credit report will show the age of credit, payment history, account balance, any collections and recent credit checks from other creditors. These details are what a lender is interested in reviewing to determine an applicants creditworthiness.

Impact of a Hard Credit Check

Hard inquiries occur when you apply for new credit or financing, it is considered a “hard” credit check since the lender will request your credit report from all 3 major credit agencies. By requesting and hard credit check the lender is reviewing potential signals of credit risk. A hard credit check will affect your credit score, albeit minimally, and remain on your report for up to two years. The great news is that typically you credit score starts to increase back to where it was after a few monthly payment records.

Impact of a Soft Credit Check

In contrast, a soft credit check does not impact your credit score. Unlike the hard credit check, a soft credit check request is done by requesting a brief report from one of the credit agencies, typically Transunion. Soft credits checks can give lenders an example of what your credit history looks like and provide an estimate of any potential signs of credit risk. A soft credit check remains visible on your consumer disclosure reports rather than your credit report.

Key Differences Between a Hard and Soft Credit Check

  1. Occurrence: Hard inquiries are made for lending decisions and often involve a credit check from all 3 credit bureaus – Transunion, Equifax, and Experian
  2. Credit Score Impact: Hard inquiries can affect your credit score, whereas soft inquiries do not.
  3. Visibility: Hard inquiries are visible on your credit report, while soft inquiries remain unviewable to potential lenders.

What to Do Before a Credit Inquiry

If you’re preparing for a credit check, there are proactive steps you can take to optimize your credit profile:

  • Check your credit score for accuracy and address any discrepancies – consumers will typically 3rd party apps like Credit Karma or Annual Credit Report.com
  • Avoid unnecessary credit applications to maintain a healthy credit utilization ratio.
  • Utilize a lender’s pre-approval process to assess your loan prospects without triggering unnecessary credit checks.
  • Settle outstanding debts promptly to showcase financial responsibility.

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