Advice and Tips

Soft Search vs Hard Search

Amelia S,
Tuesday, 03 November 2020

If you’re currently looking for finance, you may keep seeing the words ‘hard credit check’ and ‘soft credit check’ and wondering exactly what that means. They affect your credit report completely differently, so it’s really important to know the difference.

Throughout this article you will see hard credit check also referred to as a hard credit search, please do not worry as they mean the same thing. We will also refer to a soft credit check as a soft credit search, this too means the same thing.

A credit check is when a company looks at information held on you to understand your financial behaviour. This will be compiled into what is known as a credit report.

Companies will only look at your credit report if they have a legitimate reason to do so. An example might be because you’ve just applied for a loan and they need to do a credit check so they can move forward with your application.

A couple reviewing their finances

There are some companies that may still do a credit check on you when you aren’t applying for a loan. These will only usually be a soft credit check and could include:

  • Banks and building societies
  • Credit providers
  • Utilities suppliers (e.g. gas, water and electricity)
  • Letting agencies and landlords
  • Mobile phone companies
  • Employers (although they won’t see your full report)

A credit check can look into a number of things. Some of the reasons may be to see:

  • If you’ve been paying your credit back on time
  • How much you currently have on finance
  • Checking your address and identity
  • What you are paying back monthly.

They could also look at the credit reports of someone you are financially associated with, so for example anyone you have a joint bank account or mortgage with.

What is a Soft Credit Check?

You’re probably now thinking, ‘so what is a soft search credit check?’ Well, it’s a check on your credit file but will only show the company doing the check what they are asking to see. For example, if they are looking to see if you are up-to-date with your repayments on debts or loans then that is all they will see.

Companies will often do a soft credit check to see how likely it is that your application would be successful.

But does a soft credit check show on your credit report? The answer is yes, but what you see on your credit report is different to what a company doing a check can see. A soft credit check can only be seen on your credit report by you. Which is why you can have as many soft searches on your credit report as you like without it affecting your credit score.

Take a look, you might be surprised at how many soft searches have been done on your credit report previously.

What does a soft credit check show?

A soft credit check will only provide the company doing the check with the information you can see on your credit report.  It is not an in-depth check, which is why it’s referred to as a soft check. It will only show the company doing the credit check what they have asked to see. They could ask to see things such as:

  • Your current credit/debt
  • Any loans
  • Your payment history.

Are soft credit checks bad?

Soft credit checks aren’t bad. In fact, they are very useful. A soft credit check will not be visible on your report to anyone other than you but allows companies to see how eligible you are for credit products.

An example of this would be when you get a quote for vehicle finance on our website. You can fill in your information, click ‘apply,’ and be told in most cases almost instantly how much finance you could get, all by us just doing a soft credit check on your file. There are some exceptions that might mean we cannot do this, but we will make you aware if this if this is the case.

If after that point you then decided to continue with your application, then a hard credit check would need to be done. This is not the same for every lender, and some will do a hard credit check on you straight away, so please check with them before applying.

What is a hard search?

So, what is a hard credit search? Well as mentioned earlier there is a big difference between a hard and a soft credit search.

A hard credit check is when a lender takes a deeper look at your credit report and your credit score. This sort of credit search does leave a mark on your credit file and can be seen by lenders as well as you.

When lenders look at your credit file, they’ll be able to see everything from missed payments to if you’ve ever been declined for a loan in the past. Although a hard search will show a company everything, generally they will only be looking for the items they are interested in. It does however provide them with a lot more information than a soft credit search ever could.

a man looking worried by a computer

A hard credit check will often be done after a soft credit check once you agree to commit to a financial product. In simpler terms it’s when you agree to buy the product.  However, some companies can do a hard credit check at the point of application, so please do your research before applying.

Luckily most hard searches generally stay on your credit report for 12 months, although there are some exceptions to the rule as a debt collection can be seen for up to 2 years. Although an IVA, CCJ or Bankruptcy will leave a mark on your credit file for 6 years, the hard search for these will only stay on your file for up to 2 years.

Hard credit checks can be carried out for lots of reasons, but the most common reasons tend to be:

  • When you apply for a loan, a credit card or mortgage
  • When you open a new utility account such as a mobile phone contract.

If you are ever not sure what type of account or company will do a hard credit check then please speak to your provider before applying.

Why does a hard search affect credit score?

Simply put, a hard search signifies that you have applied for credit and shows to other lenders that you might be a financial risk to lend to. Applying for too much credit in a short space of time shows that you might not be able to afford the repayments and can leave you with a bad credit score.

It’s important to understand that it isn’t just a hard search that can affect your credit score. It can be a number of things including whether you are on the electoral roll or even something as simple as if you’ve moved address several times in the last couple of years.

One hard credit check shouldn’t have too much of an impact on your credit score, especially if you are borrowing responsibly and you know you can keep up the monthly repayments. It’s only when you make multiple applications for credit over a short period of time that will affect your credit score drastically. Getting declined for credit will also affect your credit score.

Having several hard credit checks appear in quick succession on your credit report could also make you look eager for credit or that you are struggling financially and might not be able to make the repayments. Although this might not be the case, in a lenders eyes you appear riskier and they are less likely to want to lend to you.

Also, if your credit score is low and you have a lot of hard credit checks on your credit report then lenders might offer you a higher interest rate if you are approved for a loan.

Make sure you know when a company will do a hard credit search on you, because too many hard searches could make your loan a lot more expensive in the long run.

At Moneybarn, we’ll only ever do a hard credit check on your credit file once you’ve found a vehicle you like and are ready to proceed with the finance agreement. At this point we will generate the documents needed to continue with your agreement, and this is when we’ll do the hard credit search on your file.

A man checking his credit score

Difference between hard and soft credit search

Hopefully by now you are a more aware of the difference between a hard and soft credit check. But to sum up:

  • Soft credit check – you can have as many of these on your credit file as you’d like. Only you can see these on your credit report.
  • Hard credit check – minimise these as much as you can. One hard credit check might only slightly dent your credit score and will only show on your credit report for 12 months. Multiple hard credit checks could make you appear as though you are desperate for credit and you might end up with no credit or a higher APR.

Always do your research before you take any loan out, and make sure you understand what having bad credit could mean for you. Before applying see if there’s an affordability calculator on their website, this can give you an estimate of what you could borrow based off your current circumstances.  

How to check your credit score?

So, you are probably thinking after reading all of this information, ‘OK, but how do I check my credit rating?’ Well, there are many ways you can check your credit score.

There are 3 different credit agencies that will provide credit checks to a variety of different organisations, and they all have websites or apps where you can check your credit report and score yourself:  

  • Experian – It’s the most used credit reference agency. They have a website and an app that allows you to check your credit report and score. With the free version you can check your report once a month, but if you’d like to know more about your report and be given advice on how to build your credit you will need to sign up for a CreditExpert account which is £14.99 a month.
  • Equifax – The second biggest credit reference agency in the UK. You can check your Equifax report directly with Equifax or through a service offered by a different company called ClearScore. ClearScore is completely free and tells you when changes are made to your report throughout the month, as well as giving you free advice on how to better your score.
  • TransUnion – The third credit reference agency that you will need to check. You can check by using the TransUnion website or by using a website or app called Credit Karma. As TransUnion is not as widely used by lenders to check your report, its service isn’t quite as comprehensive as the others. You can however check your credit score for free, so it’s worth downloading.

These different credit reference agencies and apps are designed to help you understand if you have bad credit, so use them to help you get a better score.

A note in a book reminding to check your credit report

FAQs

How long do credit searches stay on your file?

A hard credit search will generally stay on your credit report for around 12 months. A debt collection however can stay on your credit report for around 2 years.  Although an IVA, CCJ or Bankruptcy will leave a mark on your credit file for 6 years, the hard search for these will only stay on your file for up to 2 years an IVA, CCJ or Bankruptcy can stay on your credit file for up to 6 years.

A soft credit search will only be seen by you on your credit report, and not by third parties such as finance companies.

Does doing a credit check affect your rating?

Doing a credit check on your own report does not affect your credit rating or score. It’s only hard credit checks that may affect your credit rating, and these can only be done by companies and not by you.

You can check your credit score and report as many times as you like. Your credit score will only get updated monthly, but some reports will show you if something has been added or changed before the month is up. 

Why do credit checks hurt your credit score?

It is only hard credit checks that potentially can damage your credit score. This is because when you take out credit it reduces the amount you can afford. This signals to lenders that you could be in financial trouble and that you may be relying on borrowing money.

Hard checks are normal, and most people will take out finance or a loan at some point in their life. It is the amount of times that a hard check is done on your credit report that you need to be careful with. A hard check will stay on your file for 12 months, but if you keep the hard checks to a minimum then a hard check could affect your score less.

How many credit searches is too many?

There is no real way of telling how many is too many, it’s like saying how long is a piece of string. However, there are some informational financial websites that suggest 6 is too many. They suggest that lenders won’t even consider you for finance if you have 6 hard credit checks on your report. As every lender is different, it’s important to only apply for finance that you have researched, and that you know you need so that you don’t damage your credit score.

How does a credit check work?

When a lender does a credit check they will request certain information on you. They will only do this if they have a legitimate reason to do so, and what they receive back will help them decide how responsible it is for them to lend to you.

They check how responsible it would be to lend to someone by looking at things such as:

  • Your credit score
  • How many loans you currently have
  • How regularly you make repayments
  • If you’re on the electoral roll
  • Whether you have moved address quite a lot in the last few years.

What does a credit check show?

A credit check will show any financial accounts you have ever opened. This includes open and closed accounts. This will include:

  • Credit cards
  • Mortgages
  • Loans
  • Car finance
  • Utility bills.

A credit check shows to a lender how responsible it would be for them to lend to you and if you have good or bad credit. As well as whether can realistically afford the monthly repayments without putting yourself at risk of falling into debt or arrears.

Amelia S,
Bringing you information on how to look after your vehicle, save money and enjoy your life on the road.
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