When you avail of a loan, a lender runs a credit check – hard or soft. It helps them know about your past payment behaviour. A lender would want their money back, so they would certainly get to know if you stay loyal to your financial commitment.
A credit check allows them to peruse your credit report to know about their previous defaults, late payment fees, etc. Having known your credit score, they can decide how much amount they could lend you as well as interest rates to be charged.
What is a soft credit check?
Having said earlier, there are two types of credit check – hard and soft. The former involves running hard inquiries leaving search footprints on your credit report, visible by other lenders. Each inquiry shows on your credit file will pull five points resulting in a significant drop in your credit score, making it harder for you to take out a loan.
A soft credit check, on the contrary, will help a lender get some information about your credit file, but it will not leave hard search footprints. As other lenders cannot see it, there is no risk of trailing your credit points.
People with good credit borrower do not bother about a type of credit check that a lender makes, but it can make a big difference for bad credit borrowers. Suppose you have got a poor credit rating and now you have lost your job. You apply for loans for the unemployed with bad credit. Of course, you would not want to see a dip in your credit rating because this will make it all but impossible for you to get the nod.
What information can a lender get with a soft credit check?
A soft credit check is quite different from a hard credit check. As it is a background check, a lender can know about your basic information such as name, address, employment history, and age.
Therefore a soft credit check facility is available only for small emergency loans. For instance, when you need to apply for doorstep loans, you can avoid a hard credit check, but when you want to take out an auto loan or a mortgage, a hard credit check is a must. You cannot escape it.
How does a soft credit check work?
A soft credit check is run when you apply for a loan, credit card or any other financial services. Soft searches are normally made using the automated checking system, so lenders do not need to contact credit reference agencies. This is why your credit score does not go down.
Soft checks also do not require your permission. A lender can do so without seeking your permission. Permission is required when a lender runs a hard credit check.
How a soft credit check can be beneficial?
There are a couple of benefits of soft credit check.
- Helps avoid losing your credit score
One of the greatest benefits of running a soft credit check is that you do not have to bear the risk of losing your credit points. It means you are eligible to apply for a loan despite a bad credit rating and your chances for rejection on the basis of your poor credit rating is almost zero. However, you must have a strong repaying capacity.
- You can get the fastest approval
As a lender will run a soft credit check, the processing speed is double compared to an application with a hard credit check. A lender does not need to calculate your credit score. They use your credit report only to get basic information, so you do not have to wait longer for the approval. Most emergency loans come with a soft credit check, especially from Onestoploansolution.
- You can identify the risk of identity theft
Another benefit of a soft credit check is that you can get to know if you have been subjected to identity theft. Credit reference agencies allow borrowers to check their credit report at least once a year. You can receive a free copy of credit file once. When you check your own credit report, no marks are shown as it is a form of soft credit check. It cannot pull your credit points. By checking your own credit report, you can get to know if it shows a default or a missed payment that you do not identify.
A hard credit check is still important
Although there are some lenders that let you borrow money without a hard credit check, it does not mean that you can apply for all types of loans with a soft credit check. Remember that most of the loans like personal loans and secured loans require hard inquiries.
It is always advisable that you should have a good credit score, so you do not experience a drastic dip in your credit points. A lender gets to know your exact financial situation after perusing your credit report, which cannot be possible with a soft credit check.
Further, you can also avail yourself of lower interest rates when a lender checks a hard credit check provided your credit rating is good. Some lenders are out there that run a hard credit check even if you are to apply for emergency loans. Therefore, try to keep your credit report in a good condition.
The bottom line
A soft credit check can prevent you from losing your credit scores. It can also help you know if you have been the casualty of identity theft. However, it does not mean that you are eligible for all types of loans without hard inquiries. There are some loans that require a thorough check of your credit file. This is why it is always recommended having your credit report in a good condition.
Mark Williams works as one of the Loan Advisors at a direct lender firm, Onestoploansolution. He has been working with the lender for about 15 years. He has been known to facilitate his employer in remarkable ways from writing to consulting and whatnot. He is a professional who wants to explore more of the UK financial market, the loan products and how customer requirement changes with time.
