While applying for a loan, most applicants are worried about the impact of a credit check. Due to a lack of complete information about the soft credit check and hard credit check, most people hesitate in applying for a loan.
But if you want to take the right financial decision, then keep the right knowledge. If you are also thinking of applying for a loan in the future, know about soft checks and hard credit checks, and use them strategically. Along with this, you can also minimize the impact while applying for a loan without affecting your credit score. Read below.
A credit check is a process in which a lending company, employer, or landlord assesses your credit report to know your financial behaviour. This credit report is maintained through credit reference agencies.
You know that Experian, TransUnion, and Equifax are the big credit reference agencies. Most credit account searches are done through these agencies. This gives information about your financial behaviour, like credit utilisation, payment history, and even current repayment capacity.
There are a few factors available for credit checks. The first is soft credit checks, which are also called soft pulls. The second is hard credit checks, which are also called hard pulls.
First, comprehend what a soft credit search or credit check is. It is a type of financial credibility inquiry that does not impact your credit score or financial records. This type of search is mostly used for background checks, pre-qualification, or personal credit monitoring.
A soft check is useful in the common scenarios, such as –
A hard credit check or hard pull is conducted when a lender wants to review details of your financial background while processing a loan. Hard pulls are performed when you actually apply for a loan.
Commonly, hard credit searches are conducted in the following scenarios:
A hard credit check has some specific features.
The tips below will guide you to apply for a loan or a credit type without affecting your credit score.
Before finally applying for a loan, it is important to check your affordability for that specific loan amount. For this, you can assess your affordability through a soft credit check or by checking eligibility, without a hard search.
This will give you an idea of your chances of getting approved. It tells how much loan amount you can qualify for. Also, get an approximate idea of the rate of interest and minimum instalments. It prevents having to apply to multiple lenders, which will eventually lead to multiple hard searches and damage your credit report.
Always keep the number of loan applications limited. Many times, due to a lack of knowledge, fund seekers apply to multiple loan companies at once. They think that if they apply to many lenders, some loan company will definitely accept their application. But due to this, the chances of loan rejection increase.
Relate the situation to yourself. When you apply to many lenders at once, all those finance companies perform a hard credit check. In such a case, multiple searches for loans show up on your credit record because you have actually applied through proper procedures.
As a result, lenders consider you a credit-hungry borrower who is desperate for funds. This is usually seen as a risky credit profile. Hence, before applying for a loan, check your eligibility and shortlist suitable lenders, and apply to only one finance company.
To minimise the impact of a credit search, it is important that you already have a good credit rating. For this, you need to maintain a strong credit profile. You can easily do this through on-time bill and debt payments, as well as a healthy credit mix. Whether you have taken a mortgage or a tiny amount no guarantor loan from a direct lender, all debts affect your credit score.
By having low credit utilisation, you can minimise the impact of a credit inquiry. If your credit profile is stable and strong, the temporary impact of a credit inquiry will have a nominal impact.
To apply for any such loan, maintain a spotless repayment history, especially of the last six months to one year. Your financial records are significant in loan procedures.
In conclusion, it can be said that now you know about both soft search and hard search. Along with this, you also know about those simple but important tips to avoid an impact on your credit report.
The most important thing is to keep your financial records spotless. Pay the bills and dues on time. This will automatically make the loan companies chase you with affordable deals. During the application process, knowledge of these small things saves you from the long-term impact of a credit search.
Description: Understand the concepts of soft and hard credit checks without significantly affecting your credit score during the loan application.
Jennifer Powell embraced finance writing just the moment she started working as a finance executive with EasyCheapLoan, which is a direct lender in the industry. Jennifer has an exceptionally keen eye for details and used her skills to pen down numerous blogs and articles on finance. When asked, she simply replies with a look on her face that shows how genuinely she cares for people struggling with financial problems. Jennifer works dedicatedly as a finance professional and considers sharing both her experiences and knowledge to increase the financial literacy of people and businesses.
