The Difference Between Credit Checks
It’s important to understand the difference between credit checks and the effects of hard and soft credit checks when you apply for credit.
Did you know that a credit check could slightly lower your credit score?
It’s critical to understand how applying for credit will affect your credit score.
How come? The two different types of credit checks—soft and hard—are to blame for this.
The Difference Between Credit Checks – What does a “Soft Credit Check” mean?
An overview of your entire credit report would be similar to a soft credit check.
It provides the person looking into your credit with a high-level view of your credit report, which is typically sufficient to make a judgement regarding things like insurance premiums, utility bills, and occasionally employment. When you check your credit report, you also see it.
Your credit report is unaffected by soft credit checks. This means that you can check your credit score as often as you’d like without it having any negative effects on it.
What does a “Hard Credit Check” mean?
In-depth information about your credit history, including your payment history, any defaults or late payments, your credit utilisation ratio, and more, is included in a hard credit check.
A hard credit check affects your credit score, which is the other significant distinction between them.
This is because there is a risk of you accruing debt or not repaying a creditor when you apply for a line of credit. Your credit score briefly declined to reflect this potential risk.
You typically don’t need to be too concerned about how a hard credit check will affect your credit score. Unless you quickly apply for several different credit lines
How Many Hard Searches Are Too Many in the UK?
Applying for credit with multiple institutions may be a good idea if you want to find the lowest mortgage or auto loan rates possible. However, if you are aware that making several hard inquiries can lower your credit score, you might be reluctant.
Fortunately, hard inquiries made within 14 days for a single credit type will be bundled by VantageScore, which is used by the three major credit reference agencies in the UK.
To avoid harming your credit score with too many hard inquiries, try to confine your search to this time frame.
How Often Should I Check my Credit Score?
- To make sure it’s in top condition, it’s a good idea to check your credit score at least once a year.
- Look for unauthorised inquiries that might be lowering your score when you evaluate your credit report.
- Report any suspicious activity right away to a credit reference agency if you notice it.