Credit check

Hard vs soft credit check: what’s the difference?

Hard or soft credit checks

If a person or business wants to apply for credit, find out if it will be a firm credit inquiry or an indirect credit inquiry before accepting. Here’s why: a hard credit application has an impact on your credit score, while a soft credit application does not.

Whether you’re asking for a credit card offer, car loan, or meeting a potential employer, you decide if you want to have your credit score checked. Once you understand the difference between a hard and soft credit check, you’ll be in a better position to decide what’s in your best interest.

What is a firm credit check?

A credit check is a thorough examination of your credit history by a creditor. This happens when you apply for something that requires a decision, like a loan or a credit card.

Every time a hard draw is made, there’s a ding to your credit score. The good news is that these dings are not very important. According to Experian, one of the three major credit bureaus (along with TransUnion and Equifax), a FICO® score typically drops five points or less for a rigorous credit check. These rigorous checks remain on your report for two years.

Many events generate rigorous credit checks. For example, a firm credit extraction is performed when you:

Avoid multiple rigorous credit checks

Each time a credit check is performed, a note is added to your credit file. A creditor may become nervous when they see several recent credit applications on your credit report.

One way to avoid multiple credit applications is to apply for multiple loans (of the same type) within a short period of time. Credit bureaus know that you are likely to get the best loan, so they count multiple credit applications for the same type of loan as one application, as long as they are completed within a given time frame.

The time varies by credit score model, but ranges from 14 to 45 days. If you plan to shop around for the best loan, play it safe by having all credit checks run within two weeks.

An example of a credit check: Let’s say you want a new rewards credit card and learn that your credit union offers a card with some nice perks. You fill out a credit application and tell the card issuer a bit about yourself, including your name, address, where you work, and how much you earn. These are all crucial factors, but the card issuer really wants to peek behind the curtain. They want to know the details of your financial history. So they do what’s called a ‘hard check’ or a ‘hard credit check’. This force of attraction allows them to further your credit report by ordering a copy from a credit bureau.

The credit card company learns which financial institution gave you first credit, your payment history, and your credit rating. Between your loan application and your credit report, the credit card company gets a glimpse of your financial history.

They also get an idea of ​​how you handled credit by getting a VantageScore or FICO® score. Although FICO is the most commonly used credit scoring model, both are three-digit numbers designed to provide insight into your financial behavior. The higher the three-digit number, the better your financial reputation.