What is a soft credit check?
The soft credit check—also known as a soft credit inquiry or a soft credit pull—is the kind of credit check that does not reduce your score. Applying for credit entails credit checking so that the lender may be in a position to ascertain the applicant's creditability. Hard credit checks and soft credit checks are the two main two types of credit checks available.
What is a Soft Credit Check?
A soft credit check is the acquisition of your credit report by an entity— creditor, employer, landlord, or other entity—without your permission. Soft credit checks vary from hard credit checks in that under the FCRA your permission is not required.
Such checks are called “soft” ones because they do not affect your credit rating in any way. Soft inquiries are reflected in your credit report though credit scoring systems such as FICO do not consider them in the score. Thus, they enable companies to check your history while the check does not impact your future loans or credit applications.
Some Common Soft Credit Checks.
- Pre-approved credit card offers – This is where you find yourself receiving credit cards that you can apply for without the need to apply because the application has already been approved in advance.
- Employers considering you for a job - Employers will run credit checks on their potential employees without the consent of such employees to assess their financial responsibility.
- Free annual credit report – Consumers are allowed to request for free annual credit report, and when the credit bureau is processing this request, it has to pull credit files without offsetting points.
- Background checks - Potential employers may run a credit check on you as part of the pre-employment screening process, although this will not harm your credit rating.
- Existing creditor periodic checks - Creditors occasionally check your file to see if you are still eligible for things like higher credit limits. This does not affect your score.
In contrast to hard credit checks that are typically used by lenders when you apply for credit, soft checks do not impact the amount of credit applications. Therefore, making soft inquiries as many times as possible will not negatively affect the score. This makes it possible for firms to assess your financial status without adverse effects provided that they exercise the right to do so under consumer credit laws.
Why do soft checks matter?
Though they are not as invasive as a hard credit check or pull, soft credit checks do not harm the credit score but are informative. Soft checks are employed by creditors to determine whether a consumer qualifies for credit products based on preliminary eligibility standards. Introduction to credit offers such as pre-approved credit card offers for instance indicate that one has already met the minimum threshold on requirements for a specific credit card. However, to ensure you qualify for the actual application, it often takes a verification which normally involves a hard credit check once you have applied.
Soft checks also help other agencies that conduct appraisals on your financial history such as landlords, utility companies, and employers to avoid unnecessary hard checks during preliminary assessments. The hard inquiries allow you to find out how well you are doing with loans and other major purchases and opening credit and having numerous inquiries that are negative can hinder the chances of approval. Because soft checks avoid this problem, they are advantageous to consumers and organizations evaluating their credit history.
Soft Credit Check vs. Hard Credit Check
The only major difference that lies between soft and hard credit inquiries is the effect they have on your total credit score. Hard checks inform credit bureaus that the consumer has requested credit, which is considered a higher risk to the financial industry. Excessive hard inquiries within a short period may indicate more borrowing behavior to potential early creditors and your FICO score will drop.
Conversely, soft inquiries just provide authorization to your report for mere reference purposes and do not cause any deduction by the credit score algorithm. They suggest that a review has been made but no application was made therefore the scoring models do not consider these checks. However, they affect you as soon as they are made and are reported on your credit report for two years with scores suffering the most for 12 months in most cases. On the other hand, soft checks might remain on your history for up to two years as well but they never affect your power to borrow money.
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