When it comes to applying for mortgages or other types of financing, it’s important to understand the credit search process. Not all credit searches leave visible footprints or entries on your credit file for other lenders to see.
A soft credit search is one type of check that lenders use when assessing your eligibility for a loan, and it does not appear on your report or impact your credit score in any way.
This article will provide an in-depth look at soft credit searches, outlining what they are and how they differ from hard searches, as well as the implications for potential borrowers when applying for a mortgage or other financing product.
Table of Contents
- How does a soft credit search work?
- What is a hard credit search?
- How do soft credit searches differ from hard credit searches?
- Why are soft credit checks useful?
- Is there a maximum limit on the number of soft credit searches?
- Why do mortgage lenders need to do a credit search
- What is a credit report?
- Checking your credit report
- FAQ
How does a soft credit search work?
Shopping around for a loan or credit card can seem daunting, but luckily there is a way to make it easier. A soft credit search allows you to get an idea of whether you’ll be accepted for the product you are interested in without the need for a full application and credit check.
This kind of search looks at some of the information you provide when applying, such as your personal details, and gives lenders an indication of whether or not they should accept your application.
In many cases, soft searches are used when considering a mortgage in principle – this allows potential borrowers to see if they’re likely to be accepted by a lender based on their current circumstances. If after looking into what’s on offer, you find something suitable, then a formal application will require a hard credit search.
With both types of searches, it’s important to be aware that acceptance isn’t guaranteed even if initial indications were promising.
A soft credit search is a type of preliminary investigation into your credit worthiness, commonly used by lenders to check your eligibility for loans or credit cards. Unlike a formal application, it does not leave a ‘footprint’ on your record which is advantageous when you are rate shopping.
The data gathered during a soft search provides an indication of how likely you are to be accepted for the product, it can also look at factors like whether you have ever been declared bankrupt or had debt agreements registered against you in the past. From this, lenders can get an idea of if they should accept or reject an application without having to go through the full process with a hard search.
Crucially, this means that there will not be any impact on your credit score if a lender carries out a soft search on you and declines to offer their product – something that is particularly beneficial when searching around for the best deal as multiple applications can affect your ability to secure credit in the future.
What is a hard credit search?
A hard credit search is a type of investigation conducted by banks, financial services companies, letting agencies and utility companies.
These enquiries look at your credit report and enables the organisations to assess how much of a risk you pose. Furthermore, any hard credit search performed will be visible on your credit report, potentially impacting your overall credit score.
A hard credit check is a thorough assessment of your credit report by a third-party. The search is recorded on your credit report, and any other company that searches it will be able to see that you have previously applied for credit.
Having too many hard checks over a short duration can lower your credit score for as long as six months, making it harder to be approved for credit in the future.
How do soft credit searches differ from hard credit searches?
The key difference between a soft and hard credit search is that only the lender making the enquiry can see the result of a soft credit search, as opposed to both the lender and applicant in case of hard enquiries.
Furthermore, lenders usually request permission from applicants before running this kind of check. Although soft credit searches are visible to other lenders if requested (usually with permission), they don’t generally affect an individual’s credit score like hard inquiries do.
You will find more useful information in our article: What is a hard credit search?
Why are soft credit checks useful?
Soft credit checks are useful because they allow applicants to check their own credit report without having any of the inquiries show up on their report.
This makes it easier for individuals to assess their own creditworthiness without worrying about harming their score. Additionally, soft checks can provide valuable information about an individual’s credit history, including payment trends, account balances and more.
Is there a maximum limit on the number of soft credit searches?
There is no maximum limit on the number of soft credit searches that can be conducted on an individual’s credit report.
Soft credit searches do not have a negative impact on a credit score, so there is no risk of damaging credit by allowing multiple soft searches to be conducted.
However, it is still a good idea to minimise the number of soft credit searches on your credit report, as multiple searches in a short period of time can raise red flags for lenders and may make them less likely to approve a loan or mortgage application.
Why do mortgage lenders need to do a credit search?
Mortgage lenders perform credit searches as a way to assess an individual’s creditworthiness when they apply for a loan or mortgage. A credit search allows the lender to see an individual’s credit history, including any outstanding debts, late payments, and bankruptcies.
This information helps the lender to determine the level of risk they would be taking on by lending money to the borrower. If the borrower has a good credit history and a high credit score, the lender may be more likely to approve their loan or mortgage application.
On the other hand, if the borrower has a poor credit history or a low credit score, the lender may view them as a higher risk and may be less likely to approve the application.
Credit searches are an important part of the mortgage application process and help lenders to make informed decisions about whether or not to lend to a particular borrower.
CONTACT A MORTGAGE BROKER
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What is a credit report?
A credit report is a record of an individual’s financial history, including information about loans, payments, and debt over the previous six years. Each of us has our own, unique credit file.
It provides lenders with vital insights into a person’s trustworthiness and reliability when it comes to debt repayment.
If you have never applied for credit then you may have a ‘thin credit file‘, due to the lack of credit information available.
Credit reports are maintained by three major credit bureaus, or Credit Reference Agencies,—Equifax, Experian and TransUnion—and provide comprehensive data about an individual’s history with borrowing money.
Checking your credit report
Checking your credit report is an important part of managing your finances and it can give you insights into how lenders may view you.
It’s a good idea to check your credit report regularly in order to stay on top of any inaccuracies or changes that may affect your credit score. As each agency creates their own separate file on you, it’s a good idea to look at all three credit reports, as the information recorded can differ.
Here are some easy steps to get started:
- Visit the websites of each of the three major credit bureaus: Equifax, Experian or TransUnion.
- Register and follow their instructions to access your credit reports.
- Make sure everything listed on the report is accurate and up-to-date, including account payment history, loan amounts, types of accounts, personal information (name, address), etc.
- Report any discrepancies or errors you find right away to the appropriate bureau so they can investigate and correct them if necessary. Doing so can help protect your overall credit score.
- Finally, if you don’t understand how something affects your credit score or have questions about what’s being reported on your report, consider seeking advice from a financial advisor or contacting customer service at one of the three bureaus for assistance.
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FREQUENTLY ASKED QUESTIONS
How long does a soft search stay on your credit file?
Soft inquiries typically stay on your credit report for up to two years, although they won’t have an effect on your score. Hard inquiries, on the other hand, are associated with borrowing money and will affect your credit score for a period of 12 months.
How many points does a soft inquiry affect credit score?
A soft inquiry typically doesn’t affect your credit score at all. These types of inquiries are not related to borrowing money, they don’t appear on your credit report and won’t influence your score in any way.
How do I see my Credit Score?
Take a look at our Credit Report Guide, which explains what your credit file is and how to check the information, including getting access to your credit score.
Is it possible to improve your credit score?
If you feel that your credit score is a bit low, or you have a thin credit file, then we have some tips on how to boost your score.
