What Is Soft Credit Check? Overview And How It Works

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Financial institutions and creditors may wish to know how successfully you manage your debt and credit history. This is where a soft credit check comes in. besides, not all credit searches leave a footprint on your credit report. A soft credit check is one of them. It is not visible to third parties on your credit report.

In this article, we are going to look at how likely your application can be accepted without performing a hard search.

What Is A Soft Credit Check?

A soft credit check means an investigation into your credit report that is introduced either by you or your company. Its occurrence can take place whether you applied for credit or not. It is mainly used in screening for preapproval financing offers or background checks. What is more, a soft inquiry does not have any effect on your credit score and that is a statistical illustration of your creditworthiness. The essence is to decide the tendency of receiving a reimbursement if your credit receives an extension. 

SEE ALSO: What Credit Score Do You Need To Lease A Car?

What Are The Purposes of Soft Credit Check?

Soft credit checks could be for two main purposes – informational or promotional purposes.

1. Informational soft credit checks

This could happen when you pull your report to see what is going on. Your employers can also pull it with your permission as part of a background check. Insurance agencies may still need to conduct a background credit check on you to enable them to determine the level of risk you might bring as a client. Another case is when you wish to rent an apartment, your prospective landlord may run a soft check on you to know how much risk you might pose while living in their apartment.

2. Promotional soft credit checks

Usually, your creditor may decide to run a soft credit check on you to see if you are fit for them to offer you their products. For you to know if they conducted a soft credit search on you, you might receive a mailing from a personal loan or credit company, asserting that you have been pre-eligible for potential credit and also that the company has carried out a soft check on you.

How Does A Soft Credit Check Work?

A time comes when you might need to shop around for something that requires a credit check. At that point, you will need to use a website that to compare the credit offers available and which one is good for you. 

Your creditors or financial institution is interested in how you can effectively manage your debt and credit history. They want to have much information on your credit usage or if you have a history of late payment. The creditor reviews your credit report and credit scores which offers him an insight into how well you manage your credit. 

A soft credit check can take place when you check your credit report. For instance, if you give your potential employer, financial institutions, or credit card companies permission to check your credit. It could also happen if you apply for preapproval for a loan or mortgage. 

In case you find the appropriate deal, presumably, for a mortgage or credit card, you can make a formal application. For that reason, the company you applied to will take a look into your credit history. This, they do with the aid of a hard credit search (to be explained later). You should also know that even though you have provided basic information for a credit search, your credit application may not be successful after a hard credit search.

READ ALSO: What Credit Score Do You Need To Buy A Car In 2022?

What Does A Hard Credit Search Mean?

While a soft credit search is all about the information you made available, a hard credit search is carried out by a third party. This third party is usually an organization like a bank and other financial institutions, letting agencies as well as other utility companies. 

They go into your credit report and see if you pose a credit risk. Also, they want to know how much credit you are managing and how long you have been managing your credit. They usually make notes of their review which always appear on your credit report. The essence is to help your creditor decide whether to elongate your credit or offer you an additional one. 

 As a result, when they make the hard credit search, it appears on your credit report. Subsequently, it can affect your credit score. It is good for you to help yourself prepare for a hard credit pull by keeping an eye on your credit reports. Then, make certain that no nasty surprises pull by you. By checking your credit report, you are carrying out a soft credit check. 

In general, hard credit often stays on your credit report for about two years. it does not sound bad but it does not mean you should not apply caution when going for a handful of credit cards at once, particularly within the range of two years.

If you have several hard inquiries within a short time, your credit card issuers or lenders might consider you a highly risky client. The suggestion is that you are likely to run into debt in a short while. That is to say, you should consider spreading out your credit card applications.

Will A Soft Credit Search Affect My Credit Report?

Some companies may not make a thorough search into your credit history. As a result, they may choose to ask you questions about your credit history, instead. As you provide the information, it does not require the company to dig deeper into your history. Though the searches may appear on your credit report, it does not affect your credit score. So, unlike the hard credit check, the soft credit check does not affect your credit scores. Depending on the credit bureau, the soft credit check on you may not appear on your credit report. Notwithstanding, they will be made visible to you when you view your credit report.

Will Checking My Credit Scores Lead To A Hard Credit Check?

This will not happen. Your checking your credit score is considered a soft credit check. Therefore, it will not lower your credit score. Equifax and TransUnion are two main credit bureaus you can check your credit scores from and you can do it without incurring any charges.

Can I Dispute A Hard Credit Check?

It is good if you can constantly check your credit reports. If you detect any error in the process, especially, a hard credit check that happened without your approval, you can go ahead and dispute it with the credit bureau. If this happens, you might see it as a sign of theft. For that reason, do not overlook it but make an in-depth inquiry into it to have an idea of what is going on. For more information, you may consider contacting the Consumer Financial Protection Bureau (CFPB).

SEE ALSO: How To Use A Credit Card To Build A Credit In 2022

Is There A Way I Can Minimize The Effect Of A Hard Credit Check?

If you stick to making your inquiry within the stipulated time, multiple inquiries for the same type of loan will not appear on your credit scores. Usually, the stipulated period is 14 days. It is good to stick to the 14-day interval to carry out your comparison shopping. This will offer you more time to shop without incurring an additional hard credit check.

Can I Run A Personal Soft Credit Check?

You can run a soft credit check on your credit by checking your scores or asking for a copy of your report. You can do this by:

  • Get a free credit score from AnnualCreditReport.com. It is your legal right to receive a free report from each of your credit bureaus each year. you can order each per quarter to enable you to keep a tab on your overall credit information over the year. 
  • Signing up for extra credit. It enables you to see 28 of your FICO scores to exactly the point your credit stands at any period. The app can help you obtain personalized offers that will offer you more chances of getting approved for your credit score. In turn, this minimizes hard credit checks on your reports.
  • Signing up for a Credit Report Card. It enables you to see your performance in the five major areas that affect your score – your payment history, credit utilization, credit age, credit mix, and hard credit checks. 

Can I Fail A Soft Credit Check?

This does not necessarily happen. But the information obtained while carrying out a soft credit check on you may cause a company not to reach out to you. In some instances, prequalification through a soft credit inquiry could be part of the application process. The essence of carrying out a prequalification soft credit check on you is to see if there is any need for you to undergo a hard inquiry. If, peradventure, you did not scale through at the initial stage, then, there is no need for you to continue with the process. This is a way of saving you some stress. 

Benefits Of A Soft Credit Check

Soft inquiries have a lot of advantages and almost no disadvantages. They do not affect your credit score and can be a way for you to know if you are qualified for promotional offers. 

With your soft credit, you can have an idea of how your credit score is reported with the different credit bureaus. To do this, ensure to take advantage of free credit reports and scores via your credit company. Close to all credit card companies offer free credit score evaluation to their credit cardholder. Each evaluation has its criteria according to the different reporting agencies involved. Soft credit can provide you with information on your credit score and credit profile per month.

Of course, you will want to keep a tab on your report and to understand who is looking at them to make sure your information is professionally handled and in the safest way possible. Additionally, if you want to lock down your data for the sake of privacy, you can freeze your credit to make any form of inquiries difficult without your permission.

Conclusion 

Your credit scores will have a huge effect on your financial health. You may need to take your time to build your credit scores before applying for credit. At that, your chances of getting approval for the financial product you want at considerable terms and rates may be high. Besides, you need to avoid applying for several credit cards within a short period. This does not say a good thing on your credit report. Although hard checks may knock off a handful of points from your scores, multiple applications within a short period may cause grave damage to your report.

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