Why is a hard credit search carried out?
If someone wants to know your credit rating, it is called a credit search. There are two types of searches that can be carried out. Soft or a hard search. If you apply for loan or credit, or you are wanting to obtain a contract, for example a mobile phone company. The company will often do a ‘hard’ credit search on your credit report. Which can also be knows as hard pull or hard inquiry.
This type of search gives the lender or organisation and in-depth look at your credit history, so the lender can get a much more detailed idea of how much credit you may have already and to see if you have been good at paying loans or credit back previously. By doing this they can also decide on if there is a risk in taking you on as a customer and if you are likely to repay the loan or credit. Hard credit search are normally carried out if you apply for:
- Credit cards
- If you are applying for a mortgage
- Phone contracts that are monthly
- Applying to rent a property
Every time someone carries out a hard search on your credit score, it appears as a visible mark on your credit history – even if you’re not successful with your application or you decide not to go ahead with it. This means that other companies and lenders can see if you’ve been applying for credit and they can use this information to build a more complete picture of your financial health. The outcome of the credit search (either a successful application or a declined application) is not visible to anyone.
Why is a soft search different?
When you want to look at your own credit score, the term for this is a soft search. A soft search is often carried out by potential landlords, employers and companies to check that you are credible and how you are saying you are. They are also used as a way to check your eligibility, which can help a lender or credit organisation make a decision on whether to approve your application for a credit card, mortgage or loan. With a soft search they do not give as much information about your previous credit history, unlike hard credit checks. Other lenders cannot see if they have been carried out; only you will be able to see this information on your credit report.
Does a hard credit search affect your credit rating?
If a single hard credit search is carried out, can lower your credit score by a few points. It is unlikely to damage your overall score dramatically, just because you are applying for a new credit card, it does not mean you are in financial trouble.
However if a multitude of enquiries are made on your report over a short period, it can have a much greater impact.
This is often caused when people apply to multiple companies to try and obtain credit, It can also signal to a potential lender that you are desperate for cash and you may seem a high risk to a lender which is often why people can be turned down.