Explained: Hard Vs Soft Credit Checks

We’re all part of this system of credit. Each of us has our own special credit ID, split into two parts - a credit report and a credit score. A credit report is a detailed history of all the credit we’ve ever used, outlining current and previous debts, how much we rely on credit, and how good we are at keeping up with repayments.

From this information, we each have a credit score - a rating system that tells financial providers how much they can trust us.

Whenever we apply for a loan, a credit card, a mortgage or any product we pay for by repeat billing, such as a contract mobile phone, utilities, rent and so on, the provider or company looks up our credit report and credit score by carrying out a credit check. They don’t always have to ask our permission and, unless we look at our own credit report, they’ll quite possibly be looking at information about us even we didn’t know.

There are two types of credit check - a ‘soft’ credit check which is mainly focused on your credit score, and a ‘hard’ credit check which accesses the full details of your credit report. It is worth understanding the differences between hard and soft credit checks, not least because of the way credit checks themselves can affect your credit rating. Here’s what you need to know.

Who can carry out a credit check on me?

Credit checks are available to any organisation that has a legitimate interest in your credit history. In practice, this means anyone you’re asking to lend you money or give you a line of credit to pay for something.

So banks, building societies, loan companies and credit card providers are the obvious examples of businesses able to carry out credit checks. But they can also be used by utility companies, insurance firms, mobile phone operators, landlords and anyone else you might make regular payments to. If you buy a new car, holiday or HD television on finance, the company which sells it to you will probably carry out a credit check on you.

One other thing to be aware of is that would-be employers are also allowed to carry out credit checks during the recruitment process. The reason behind this is that companies argue people in financial difficulties are more likely to commit fraud against or steal from their employer, so they’d rather be aware of the risks in advance.

What is a soft credit check?

Soft credit checks more or less focus on looking up your credit score with a few other basic details, without going into your credit history in depth. They are most commonly used during the sales and screening phase, when a loan provider, for example, might want to check your eligibility in general terms before giving you a quote.

Choose Wisely works with lenders who use a soft check as part of our Check Eligibility tool. This is great because it allows us to list providers who'll accept your application in principle, for the product you're looking for, based on an initial screening of your circumstances. However it's important to be aware that not all lenders make use of this soft check first and some will carry out hard credit check. So what happens then?

What is a hard credit check?

Banks, loan companies and other credit providers will run a full check of your credit history when you’ve made an application and they are deciding whether to approve you or not. This is known as a hard credit check and gives them full access to the details held on your credit report.

What companies are most interested in when they carry out a hard check is any indication on your record that you have had problems with credit - defaults on payments, CCJs, bankruptcy and so on.

Should I be wary of credit checks?

Hard credit checks are recorded on your credit history and can be seen by other companies. The risk this carries is that it could damage your credit score, especially if the number of hard checks starts to mount up. Seeing lots of credit checks on your history suggests one of two things to a finance provider - either you rely heavily on credit or you keep getting knocked back for products and trying again. Both are considered black marks against your suitability for credit.

Soft checks do not appear on your credit report, so have no impact on your credit score. You can also lookup your own credit score freely, as this takes the form of a soft check.

Where you have to be careful is the number of formal applications you make. As each application triggers a hard check, it also potentially docks points off your credit score, making it harder to get what you want. If you already have a low credit score, you should be extra careful about the types of product you apply for. If you know you have a poor credit history, for example, applying for a standard personal loan could hit you with a double whammy - you’ll likely be rejected, and the hard credit check your application triggers could further damage your credit score.

Think smart, and increase your chances of getting approved by looking at loans for bad credit. By using Choose Wisely, you will also see which companies have already accepted you in principle, further increasing the likelihood of getting the go-ahead. The higher the chances of being approved, the less risk there is you’ll have to re-apply, protecting your credit score from further checks.