When you apply for a loan, the lender will contact one of the credit bureaus in the country to inquire about your credit score and repayment history. A credit score is a two-digit number that depicts your creditworthiness. Based on this number, the lender will decide whether to approve or reject your loan application.
Now, that process of inquiring about your credit score is often referred to as credit check. The only time a lender will fail to conduct a check is when you apply for no credit check loans. The common types of credit checks are soft credit check and hard credit check.
Each of them affects your credit score differently, and it is vital to know how they differ. Read on to find out the key differences between a hard credit check and a soft credit check.
Hard Credit Check
If you apply for a loan such as auto loan or mortgage, the lender will request your permission to check your credit score and credit report from one or more of the major credit bureaus in the country. Since these credit checks are directly tied to a loan application, they are categorized as hard inquiries and can affect your credit score.
Too many hard credit checks within a relatively short period can be a red flag for most lenders because multiple hard checks may add up to numerous new credit accounts. Opening different credit accounts in quick succession may be interpreted to mean that you are struggling to pay your bills or you are at the risk of overspending.
As a result, hard credit checks usually have a temporary negative impact on your credit score. However, you can avoid the hard checks when applying for a loan by going for no credit check loans.
Soft Credit Check
Unlike a hard credit check, a soft credit check won’t affect your credit score at all. Typically, if a potential lender checks your credit report, the soft credit inquiries won’t show up at all since they are only visible on consumer disclosures.
Consumer disclosures are credit reports that you request personally from the credit bureaus. Soft checks are usually pulled on your credit all the time. When a potential employer conducts a background check, when you check your credit or when you receive a credit offer in your mail, a soft inquiry is recorded on your report.
Soft credit checks are not disputable but only available for reference.
How Long Do Credit Checks Stay on Your Credit Report?
Typically, a hard inquiry will stay on your credit report for about two years, but their impact on your score lessens over time. The truth is that even if you have multiple hard checks in a relatively short period, it is still highly unlikely that potential lenders will give them too much weight.
Your credit utilization ratio and history of on-time payments are much more important to lenders than hard checks.
Although you cannot have an accurate hard credit check removed from your report, if a lender conducted a hard inquiry on you by mistake or without your express permission, you can ask the credit bureau to remove the record from your credit report.