A soft credit check (also known as a soft inquiry or soft credit pull) is when you or employer, credit card company, auto loan lender reviews your credit report and credit score. You may authorize a soft credit check on some occasions, like when an employer has you sign off on a credit and background check or as part of a preapproval process. You have probably had one performed on your credit and may not even have realized it.
A soft credit check does not affect your credit score because they are not performed based on an official request for a line of credit or a loan. Soft inquiries are used to see if you qualify for a line of credit or loan if you choose to apply and are often initiated without your knowledge.
How a Soft Credit Check Works
You decide to apply for your first home loan and go to a few lenders. The lenders need to know your credit situation, how often you pay bills, how many open accounts you have, and what debt you currently owe. Instead of a hard credit inquiry, they perform a soft inquiry.
They can get an idea if you qualify for a loan and give you enough information to compare what terms they may offer you. Lenders use the soft credit check as a way to review your credit report before you have committed to their product.
Examples Of A Soft Credit Check
There are numerous situations where a soft credit check or soft pull is done on your credit history. Often a soft credit check will be referred to as a preapproval performed by a lender or credit card company. Below are examples of when a soft credit check is performed on your credit.
- A new employer hires you, and you sign a release allowing them to check your credit.
- Your current bank that holds your mortgage sends you a preapproval letter stating your credit qualifies you to refinance your mortgage.
- A local dealership or credit card company sends you a notice of a preapproval offer.
- A current creditor runs your credit to find current or updated information.
- Debtors you owe may perform a soft credit check to find your current address and phone number.
- Anytime you apply for a preapproval, whether for a credit card, mortgage, or auto loan.
- Anytime you check your credit.
Soft Inquiry Vs. Hard Inquiry
Lenders perform two credit inquiries: a hard inquiry and a soft inquiry. A hard inquiry is conducted when you apply for anything that will affect your credit, like a line of credit or loan. Authorization is required to perform a hard inquiry because your credit score is impacted. Below are typical examples of hard inquiries.
- Auto loan
- Personal loan
- Credit card application
Hard inquiries will affect your credit score for up to two years, with an impact of up to ten points added to your credit score. The more hard inquiries performed on your credit, the more significant and negative the impact.
If you apply for three credit cards in a month, creditors view this as negative money issues, needing additional credit and viewing you as more of a risk.
To prevent this, research the loan and credit products you are interested in and ensure they can complete a preapproval before a hard inquiry.
Do Soft Inquiries Affect Credit Score
The different credit reporting agencies analyze specific information to generate your credit report. Soft inquiries or soft credit checks show up on your credit report but have no negative or positive impact.
Soft inquiries are performed frequently and often without your knowledge. Soft inquiries are inquiries you haven’t requested or are made for informational purposes, so they do not affect your credit report.
How Long Do Soft Inquiries Stay On Your Credit Report?
Hard inquiries can stay on your credit report for up to two years, while a soft inquiry will not show up when a lender pulls your credit report. Since a soft inquiry has no impact on your credit score, lenders and creditors will not see them when they pull your credit.
A soft credit report is only visible on consumer credit reports which is the report that you request on yourself.
Is a Soft Credit Check Bad?
Soft credit checks offer a lot of advantages and no disadvantages. They don’t hurt your credit score and can help keep you informed, so it is a great idea to pull your credit. Remember, when you pull your credit, that is a soft credit check, so it has no impact on your credit score.
The other great thing about checking your credit regularly without affecting your credit is that you can monitor your soft inquiries for any out-of-the-ordinary credit card or lease agencies pulling soft inquiries. This could alert you to someone accessing your information to try and gain access to loans or lines of credit in your name.
To sum up, soft inquiries do not affect your credit score. They often happen and many times without your approval or knowledge. They are nothing to worry about in terms of credit, and can be an asset in improving your credit health.
Using soft inquiries can help you find the loan or credit products that meet your needs and is appropriate for your credit situation. Soft inquiries will reduce the number of hard inquiries on your credit, impacting your score and being visible for two years
Remember whenever you are applying or reviewing a new financial product to have the lender clarify if it is a soft or hard inquiry. This allows you to control your credit and not have any surprises.