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What is a soft credit check?

Written byKoyo Loans
Last Updated18th November 2022
Contents
  • What is a credit check?
  • What are the big differences between soft and hard credit checks?
  • Do lenders use soft or hard credit checks?
  • Why are credit checks necessary?

When applying for a loan, a lender will conduct a credit check on your financial profile to ensure that you’re capable of successfully paying the money back. In turn, you can be approved for a loan that could help with car finance or home improvements. But what exactly is a soft credit check and how does it differ from a hard credit check?

What is a credit check?

Put simply, a credit check is a sort of financial background check that gives many lenders an understanding of your financial situation. In turn, this helps lenders make a determination on whether an applicant can successfully pay back a loan. These credit checks are conducted by three different credit bureaus within the UK:

  • Equifax
  • Experian
  • TransUnion

These three bureaus pull together information on potential borrowers and provide it to lenders looking for details on loan applicants. This information includes things like bill payments, date of birth and a list of credit accounts you may own, which is then aggregated into – you guessed it – a credit score.

What are the big differences between soft and hard credit checks?

Credit checks are generally split into two different types, which lenders use to assess your financial situation. These are:

  • Soft credit checks
  • Hard credit checks

The best way of understanding the difference between a soft and hard credit check is by visualising footprints. Hard credit searches will leave a footprint, which other lenders will be able to see for a number of years. If you leave too many footprints behind in a short amount of time, it can indicate a desperate or unstable financial situation and will make you more likely to be refused a loan. 

In contrast, a soft credit check will leave no footprints behind on your credit profile, ensuring that your credit score remains the same. Ultimately, soft credit checks don’t affect your credit score as they cannot be seen by other lenders, while hard credit checks can. 

Do lenders use soft or hard credit checks?

Many lenders will use hard credit checks to determine whether to approve a loan application or not. As previously mentioned, too many of these can have a negative impact on your credit score which can last for a long time. However, it’s important to mention that making a few applications once in a while won’t have a significant effect on your credit score.

The main thing lenders will look for is a lot of declines in a short period of time, which gives off the impression of an unsuitable borrower. We suggest making use of an eligibility calculator to determine whether you are likely to succeed in a loan application. 

However, some online lenders, such as Koyo Loans, initially conduct a soft search enquiry, which ensures that your application will not impact your credit score. While a personal loan, like any other form of borrowing, will inevitably affect your credit rating, this style of application will not have an impact if you are declined or decide not to proceed with the application.

Why are credit checks necessary?

While credit checks can be frustrating, it’s worth remembering that they are done in both your interest and the lenders. With a good credit score, the lender knows that they can give you a foundation to help you with home improvements, car finance and more, without putting you in a difficult financial situation. 

Unlike other traditional lenders, Koyo Loans makes use of innovative Open Banking technology to find information about your financial situation, alongside a credit check.

This information informs the final decision on your loan application and is a fairer, safer and more secure way to apply for a loan. The best part? This initial application does not have an impact on your credit score. Find out more at www.koyoloans.com. 27.9% APR Representative.

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