What Is Soft Credit Check? | All You Need to Know


Soft Credit Check - Basic definition

A soft credit check can be initiated by a company or you. It is typically conducted by lending institutions to establish whether you are eligible for loan(s). A soft credit inquiry grants access to information about your financial behaviour such as late payments, credit accounts, repayment, etc. However, this type of credit inquiry does not affect your credit score.

KEY TAKEAWAYS

  • A company or you can initiate a soft credit check.
  • A soft credit check is conducted to determine whether you are eligible for a loan.
  • The soft credit inquiry pulls information like late payment records, credit account numbers, and repayment activities, among other details.
  • A soft credit enquiry does not affect your credit score.
  • Soft credit checks reflect on your file for up to 12-24 months but is only visible to you.

How Does a Soft Credit Check Work?

Lending institutions refer to your file and credit score to determine your creditworthiness and loan repayment patterns. They measure your financial responsibility by referring to the number of late payments showcased on your credit report, your credit usage history, and overall financial behaviour.

With this bit of information, potential creditors estimate the amount of risk in approving your loan application. If lenders see that you have been managing your credit well, you are more likely to get a loan on favourable terms and conditions.

Here are some scenarios in which a soft credit check may be conducted:

  • Credit card companies or lending institutions may initiate a soft credit inquiry to confirm your eligibility for loans.
  • Landlords may conduct a credit check when you apply to rent a property.
  • An employer may conduct a soft credit inquiry as part of a background check, to determine your financial behaviour.

Soft Credit Inquiry vs. Hard Credit Inquiry

Here are the key differences between a soft and a hard inquiry:

Subject Hard Inquiries Soft Inquiries
Impact It can impact your credit score It does not impact your credit score.
Permission Anyone who conducts hard inquiries requires your permission. There is no permission required to conduct soft inquiry.
Occurrence A hard inquiry occurs when you apply for financing. A soft inquiry occurs when someone wants to verify your credit history.
Visibility Your hard inquiry is visible to you and anyone who checks your credit history. Soft inquiry is only visible to you on your credit report.

How Do Soft Inquiries Impact Credit Scores?

Soft inquiries do not affect your credit score. Even though you can keep track of any soft inquiries that may have been run on your credit report, these checks are not visible to others. So, when potential lenders check your credit report, they do not take soft credit inquiry under consideration when it comes to determining your creditworthiness. However, a hard inquiry can negatively impact your credit score, temporarily.

Final Word

A soft credit check is a type of informational check that you or a company can conduct. It is not a deep dive into your credit history. The key point here is that these checks, unlike hard inquiries, do not impact your credit score. They will reflect on your report for a few months but will only be visible to you. This ensures that your financial privacy is maintained, and your chances of loan or credit approval are not affected, as creditors do not consider these checks when evaluating your creditworthiness.

Other Words

  • Secured Loan
  • Self-employed individual

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