Know the difference: soft vs hard credit checks
Category General News
Whether you're planning to be a homeowner or renter, you'll quickly discover one thing. You need a good credit score to secure a loan or show you can be trusted to pay your rent every month. After reviewing your credit report, you'll get insight into your credit payment history, any amounts owed, new credit you've taken on, and, finally, enquiries or checks. The latter can often be a head-scratcher if you're new to credit discussions, so here's our guide to help you navigate the process.
What is a credit check?
If you've heard the phrase "pull your credit", you've likely had a credit check done. Lenders or creditors do this to get a look at your credit report and evaluate your credit history and behaviour. These credit checks can either be soft or hard depending on the scenario.
What is a soft credit check?
A soft credit check typically happens when a person or company checks your credit profile as part of a background check. Your credit score will be accessed from a credit bureau, but not your full credit profile. Instead, the checker will see your credit score range - poor, fair, good, very good, and excellent.
Soft credit checks can be done without your permission. However, a sigh of relief here - they don't decrease or impact your credit score in any way, unlike hard checks.
Examples of soft credit checks
- Preapprovals: This will check if you have the potential to qualify for funding for a home bond or vehicle financing.
- Rental check: Good landlords or property managers will check your credit score to see if you have a positive financial history and will be likely to keep up with your rental payments.
- Employment verification: This will check if you are financially responsible, especially if you will be managing money as part of your duties.
- Contract applications: This will check if you are likely to handle monthly payments e.g. a cellphone contract.
- Personal credit report pulls: You can exercise your right to view a free copy of your credit report. This is a good idea to improve your credit score or check for signs of fraud or identity theft.
What is a hard credit check?
A hard credit check is done when you apply for credit or a loan. The provider or lender will make a request to view your full credit report to decide if you are a low-risk customer who qualifies.
Unlike soft credit checks, they will need to get your permission to do this check. These enquiries also harm your credit score, especially if done multiple times in a short period. This can make you appear as a risky client who is taking on too much of debt and doesn't have a handle on their finances or appear as a sign of fraud. However, you can rest assured that while it has an unfavourable effect on your score, it doesn't count as high as other factors like your payment history.
Examples of hard credit checks
- Loans: This will check if you qualify when applying for a bond, vehicle financing, student loan, or other personal loan.
- Credit cards: This will be done when you apply for a line of credit, a new credit card, or request a credit limit increase.
How to deal with credit checks
Taking on new credit or a loan can temporarily decrease your credit score. Before applying, you should ensure your score can manage the decrease once a check is done. Use soft checks to keep track of your score and work on improving it. A quick way to boost your credit score is to query errors found on your credit report and have the credit rating agency correct them. When applying for a home loan or credit, you should also keep your hard enquiries to a minimum so they don't adversely affect your score.
Take the stress out of credit checks
On your real estate journey, credit checks can seem daunting. The team at Kellaprince Properties are here to guide you every step of the way. Whether you're applying for your first home loan or are a first-time renter, we will keep you informed of any rental checks to expect and give you advice on enhancing your credit score if you need it. Reach out to us for our expert property sales and rental services today.
Author: Kellaprince Properties