Soft credit search vs hard – what’s the difference?

Many people have never had to worry about their credit history or what a credit check will throw up, until they come to make out a mortgage.

Here Milton Keynes based mortgage brokers Visionary Finance explain the difference between a soft and a hard credit search and how they can affect your mortgage application.

One of the most important factors when applying for a mortgage is how good your credit is. All mortgage lenders will take this into account when deciding whether they are happy to lend to you or not. They want to know how much credit you are committed to, whether or not you’re paying it back on time, if you’ve had any issues and how well you’re managing your credit obligations.

When submitting an application for a mortgage, be it a new purchase, remortgage or for a Buy To Let property, you are going to have to consent for the lender to carry out a credit search. Without giving this consent the lender will not lend.

There are two types of credit search – a soft credit check and a hard credit check.

What is a soft credit check?

A soft credit check is a search that does not affect your credit score – so a company could be checking your credit history to see if you would pass a full credit check, without having to do a full in-depth check.

Many credit card companies and mortgage comparison websites perform soft credit searches so that they can advise you whether you could be successful in an application for credit with them.

What is a hard credit check?

A hard credit check is where a company does a full search of your credit history. In general, most companies that you get credit from (including loans and mortgages) will perform a hard credit check at the time of application.

Every time your credit record is hard checked, the search is recorded on your report.

Too many hard credit checks in a short timescale can affect your credit score for 6 months, so it is best to only apply for credit with companies that will do these checks when you are certain that you will be accepted for the credit.

So what is the difference between a hard and a soft credit check?

A hard credit check can happen when you apply for a loan or mortgage, take out a credit card, apply for a monthly mobile phone contract or apply to a utility company.

Soft credit checks aren’t visible to companies looking at your credit report, and happen when you check your own credit on a site such as Experian or ClearScore.

Does a hard credit check affect my credit score?

A hard credit check, and in particular a lot of hard credit checks in a short period of time can lower your credit score. Companies checking your credit may feel that you are credit hungry  – borrowing too much or have too much credit that you may possibly not be able to pay back.

Lenders may think that you are higher risk, and hard credit searches can stay on your record for six years.

How can I improve my credit score?

  • Ensure that you are registered on the electoral roll – it’s proof of where you live.
  • Pay your phone bill and utilities on time.
  • Young people may find that they have NO credit history, so taking out a mobile phone contract or a low balance credit card and paying it every month will help to build your credit profile.
  • If you do get a low balance credit card, don’t run it to it’s limit every month. This is called credit utilisation and the lower the better (although bizarrely, NOT using your credit card at all can also affect your credit score negatively).
  • Use a site such as Experian to check your credit for free.

When applying for a mortgage you can save a lot of time by knowing your credit score in advance – this avoids your mortgage broker or company performing a hard credit search and possibly damaging your credit further.

 

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Posted on 8th September 2021