What Are Soft Credit Checks?

You may wonder about soft credit checks and how they differ from hard credit checks. Although both soft and hard credit checks involve your credit report, there are significant differences between the two. In some cases, you have no control over whether a hard or soft check occurs, however, in some cases it is advisable to opt for a soft credit check if possible.

Soft Credit Checks

Soft credit checks result when inquiries are made for your credit report by entities that do not intend intend to offer or extend direct financial services such as mortgages, car loans or credit cards. Soft credit checks do not show up in credit reports provided to third parties; they are only visible to you whenever you request copies of your own credit report. A request for a copy of your own credit report also counts as a soft credit check, even if you request copies from all three major credit reporting bureaus.

Reasons for Soft Credit Checks

Soft credit checks are often conducted by entities seeking information about you in the process making a decision concerning their professional or business relationship with you. For instance, employers may conduct a soft credit check as part of a hiring decision. Banks may conduct soft credit checks to verify the identities of individuals that apply for accounts, especially checking accounts, although some banks use hard credit checks. Many financial experts recommend checking your own credit at least once every year to minimize the possibility and adverse effects of credit fraud and identity theft.

Effects of Hard Credit Checks

Hard credit checks appear on credit reports provided to third parties. Each hard credit check remains on your credit report for up to two years; each inquiry lowers your credit score by five points for about six months. according to Money Blue Book. The appearance of too many hard credit checks on your credit report during a short period of time can cause lenders and other credit-granting agencies to suspect that you are seeking credit to compensate for a shortfall in your income or to cover large individual or household expenses and may run into difficulties paying off high credit card balances or other financial obligations.

Precautions and Alternatives

Request merchants and other credit granting agencies conduct soft credit checks whenever possible, especially if you are still investigating your purchasing or borrowing options. Another suggestion to minimize hard credit checks during the process of shopping for a mortgage or a car is to conduct your own credit check and provide the results to potential lenders or car dealerships. Ask the merchant or financial institution to conduct a preliminary evaluation based on your information, and authorize a hard credit check only when you are ready to buy or have a loan or credit offer on the table.