Soft and hard credit searches – What’s the difference?

When applying for finance, you will be asked by your lender if they can perform a credit search on you.

There are two types of searches, which are called soft and hard credit checks. But what actually is the difference between the two?

Well, this blog will explore the differences between both and explain how they can impact your future credit history.

What is a credit search?

laptop depicting credit search

Credit searches are performed by lenders before a loan application is approved. The credit search informs lenders of your borrowing history and allows them to understand your financial background.

These searches will give lenders an insight into how much you have borrowed previously and if these repayments were made on time.

It will also highlight whether you have any country court judgements or any other financial problems that might affect your repayments.

From this information, lenders will be able to generate an understanding of the type of borrower you are, allowing them to make a more informed decision on whether to lend to you or not. Other factors will also be taken into consideration when deciding whether to approve the loan.

The type of search you receive will depend on the finance you are getting and how far through the application you are. But there are two main types you should be aware of named soft and hard credit searches.

Soft credit searches

A soft credit search is a light check, which gives lenders a basic view of your credit record. This type of search may be used when they want to understand whether you qualify for particular rates and products.

Whenever you go over your credit record, you will be performing a soft credit check on yourself.

These types of checks will not show up on your future credit record, which means that other providers will not be able to see this information and your credit score will be unharmed.

This can be particularly useful if you often consider getting finance to help you fund certain needs. 

Hard credit searches

A hard credit search on the other hand gives a much more detailed view of your financial background.

This is where lenders will be able to see any damaging points on your credit record, including late or missed payments, CCJs, bankruptcy and any problems you might have with debt.

Unlike soft credit checks, these searches will show up on your future record, and so lenders and other financial providers will be able to view these. 

As a result of this, they will be able to clearly see when you have applied for finance previously and whether it was successful or not.

Although this may not be considered negative, it can damage your credit score and brings challenges if you make lots of applications for different finance in a short space of time.

This is because it could indicate to lenders that you have financial problems and desperately need further funds.

Key differences

The primary difference between these types of credit searches is that one will show up on your future credit record and may affect your credit score, whereas the other does not.

A damaged credit score may impact your success at getting future finance, and so it could be hard for you to get the funds you need for your plans.

Therefore, when applying for any type of finance, it’s important that you consider your options carefully and determine whether you are definitely eligible for the loan.

This will help to ensure that the number of hard credit checks that are performed are kept to a minimum.

Conclusion

In summary, these credit checks are particularly important to lenders and will be performed any time you apply for finance. It is therefore important that you assess whether you definitely want these funds, to ensure that these searches are only undertaken when you need them.