Credit Checks: Soft Check vs Hard Check

Credit Checks: Soft Check vs Hard Check

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    Published 18/02/2021 14:02 EST

    Credit checks are performed by companies looking into your creditworthiness for a large variety of reasons – everything from applying for a new credit card or job to buying a new vehicle or home. These checks help determine if you’re dependable and able to pay back money you borrow. It’s important to know the difference between soft and hard credit checks and how they can impact your credit score, particularly if your credit is pulled numerous times within a short timeframe.

    Key Takeaways
    • Credit checks are performed by companies looking into your creditworthiness for a large variety of reasons – everything from applying for a new credit card or job to buying a new vehicle or home
    • A single hard inquiry could lower your credit score by a few points, but it’s unlikely to play a huge role in whether you’re approved for a new credit card or loan
    • Multiple hard inquiries within a few weeks or months could lead lenders and credit card issuers to consider you a higher-risk borrower, as this action suggests you may be desperate for cash or preparing to accumulate a lot of debt

    What is a hard credit inquiry?

    Hard inquiries – also commonly referred to as hard pulls or hard credit checks – are usually carried out by a financial institution or credit card issuer while checking your credit as part of their decision-making process on whether to lend you money. Hard credit checks typically take place when you apply for a mortgage, personal loan or credit card, and you normally have to authorize them.

    A single hard inquiry could lower your credit score by a few points, but it’s unlikely to play a huge role in whether you’re approved for a new credit card or loan, including a mortgage. But, if your credit is bordering between good and not so great, every point counts. When this type of inquiry becomes more serious is if you’re applying for several credit cards within a short period of time or shopping for a mortgage on your own and having multiple lenders check your credit individually.

    Important

    If you work with nesto to secure your mortgage, although we search many lenders to find you the best mortgage to meet your needs, your credit is only pulled once

    Multiple hard inquiries within a few weeks or months could lead lenders and credit card issuers to consider you a higher-risk borrower, as this action suggests you may be desperate for cash or preparing to accumulate a lot of debt.

    What is a soft credit inquiry?

    Soft inquiries – also commonly referred to as soft pulls or soft credit checks – are most likely to be carried out when a person or company looks into your credit as part of a background check. For instance, this can occur when a credit card issuer checks your credit without your permission to see if you qualify for certain credit card offers or a potential employer runs an inquiry before hiring you.

    Soft inquiries won’t affect your credit score like hard ones could. And, since soft inquiries aren’t connected to a specific application for new credit, they’re only visible to you when you view your credit reports.

    Examples of hard and soft credit inquiries

    Hard credit checks are usually performed with your permission when you’re applying for a:

    • Mortgage
    • Personal loan
    • Automobile financing
    • Credit card
    • Student loan
    • Rental agreement

    Soft credit checks are often completed by:

    • Credit card issuers offering special promotions
    • Potential employers
    • Checking your own credit

    👆 Tip

    It’s a good idea to check your credit report regularly with both agencies – Equifax and TransUnion – to ensure you know where you stand and that you haven’t been the victim of identity theft

    What type of credit inquiry is common when buying a home?

    When financial institutions check your credit as part of their mortgage loan approval process, they’re conducting a hard inquiry. 

    If you’re shopping for a mortgage on your own and having multiple lenders pull your credit, this could have a negative impact on your credit score. If, however, your nesto mortgage advisor is having multiple lenders compete for your mortgage business, this will only count as one hard inquiry. 

    How many hard credit inquiries is too many?

    The impact that one hard inquiry will have on your credit score depends on your overall credit health. In general, adding one or two hard inquiries to your credit report could lower your score by a few points, but this is unlikely to have a significant impact unless your creditworthiness is hovering near the approval level. 

    Credit scores range from a low of 300 to a high of 900. Most traditional mortgage lenders require a credit score of at least 680 to obtain an approval.

    Racking up a lot of hard inquiries within a short timeframe will likely have a greater impact on your credit score. This is because lenders and credit-scoring models view multiple credit applications in a short amount of time as a sign of risk that you’re desperate for money or looking to accumulate a significant amount of debt. 

    How to dispute hard credit inquiries

    It’s important to check your credit report regularly to ensure the information contained within it is accurate. You can request a copy at any time from Canada’s two credit-reporting agencies, Equifax and TransUnion. Any errors in your report could unfairly affect your score and, as a result, your ability to obtain a mortgage or other loan, so it’s important to ensure your reports are up to date and correct.

    If you spot any errors, such as a hard inquiry that occurred without your permission, consider disputing it with the credit agencies as this could be a sign of identity theft. At the very least, you’ll want to understand why the check was performed and by whom.

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