What's the difference between a soft and hard credit check?

What is a credit check, and why are they important?

A credit check, sometimes known as a credit search, is used by companies to assess your financial circumstances.

Companies and organisations that might perform a credit check include:

Banks, building societies and credit unions
Utility companies (e.g. energy and water providers)
Landlords or letting agents
Mobile phone providers
Employers

To complete a credit check, the company or organisation will look at your credit report. This contains information about your past borrowing and repayment activities. These reports are produced by the three main credit reference agencies: Experian, Equifax, and TransUnion.

The report will include things like your payment history, outstanding debts, and public records of any bankruptcies or court judgments. The credit reference agencies also give you a credit score, which is a number that illustrates your creditworthiness (your likelihood to make repayments).

Credit checks are really important for several reasons:

Lending decisions: A good credit history increases your chances of getting approved for a loan and may lead to better interest rates and terms.
Credit limit: Credit card providers use a credit check to decide your credit limit. A strong credit profile can mean a higher credit limit, giving you more financial flexibility.
Renting: If you’re looking to rent a property, the landlord or letting agent may use credit checks to assess your financial responsibility and ability to pay rent on time.
Employment opportunities: In some industries, employers may conduct credit checks to evaluate your financial stability and responsibility.
Financial planning: Checking your own credit report is a great way to assess your financial health. Understanding your report and score can help you take steps to improve it.

What is a soft credit check?

A soft credit check provides a view of your financial history, without leaving a record of the search on your credit report. This means soft credit checks have no impact on your credit score and it doesn’t matter how many are carried in a short timeframe. Only you can see soft searches and your report will show you these from the last 12 months.

Here are some situations where soft credit checks may be carried out:

Personal credit report checks: When you check your own credit report, it’s considered a soft credit check. This means you can keep track of your financial situation without it impacting your credit score.
Initial credit searches: When you are interested in applying for a credit product, a lot of lenders will give you the opportunity to have a soft credit check search first. This means they can tell you if you’re likely to be accepted, and sometimes what interest rate you could get before you apply. When you search for credit offers on broker sites, like Clearscore and MoneySupermarket, they also use soft credit searches.
Employment check: Some employers might carry out a soft credit check as part of their hiring process, especially for positions that involve handling finances or sensitive information.
Background checks: Landlords or letting agents may conduct soft credit checks to evaluate your financial stability and payment history.
Identity checks: A company might use a soft credit check as part of its identity verification process.

What is a hard credit check?

A hard credit check is a more detailed review of your credit history. Unlike a soft credit check, a hard inquiry can impact your credit score, potentially causing a slight decrease in points.

Each hard credit check shows up on your credit report, which means any company looking at it will see that you’ve applied for credit.

If you have too many hard credit checks on your report over a short period of time, it can negatively affect your credit score. This is because it can make it look like you’re desperate for credit.

Hard credit checks usually happen when you apply for new credit or financial services, for example:

Credit card applications
Loan applications
Finance agreements (e.g. when buying furniture)
Rental agreements
Mobile phone contracts
Utility providers

There is no way to be offered a credit product like a loan, or credit card, without having a hard credit search. Even if you’ve had a soft credit check from a lender upfront, a hard check will still be carried out when you apply.

What's the main difference between soft and hard credit checks?

The most important difference between them is their impact on your credit score.

Soft and hard credit checks do essentially the same thing - they check your credit history to give companies an idea of your financial reliability. However, the main difference is that hard checks can affect your credit score, and soft checks don’t.

Soft credit checks are generally only used for informational purposes to give lenders an idea of your creditworthiness. They’re also used when you check your report yourself to see your score.

Hard checks are much more thorough and are usually carried out when you’re applying for credit. Lenders need to have a good look at your report before they lend you any money so they can be confident you can pay the money back.

It’s a good idea not to apply for credit several times in a short period of time, because this will show up on your credit report and can reduce your score.

Will a hard credit check impact my ability to get credit?

A hard credit check can impact your ability to get credit. As mentioned, When financial institutions like banks and building societies carry out a hard check on your credit report, it leaves a record which shows you've applied for new credit.

If lenders see that you have a lot of hard checks on your report, it can give the impression you’re struggling financially. This is a red flag to lenders and can make it more difficult for you to borrow.

For this reason, it’s important you keep the number of hard credit checks carried out on your record as low as possible. Here are a few ways to minimise hard credit checks:

Apply carefully: When looking for a loan or credit card, research and compare products first so you’re confident it’s right for you. This could reduce the need for making several applications.
Do a soft search first: Many comparison sites, brokers and lenders offer a soft search credit check before you apply. This allows you to see if you are likely to be approved before committing to a hard credit check.
Monitor your credit: Regularly check your credit report to make sure it looks accurate, and there aren’t any hard searches that didn’t come from you.
Consider alternatives: if you’re worried about being approved for a loan or credit card, explore credit products designed for individuals with limited credit histories.

Minimising hard credit checks can help to protect your credit score and improve your chances of getting approved for the credit you need.

If you do have to make multiple credit applications, for example, a new mobile phone contract and a credit card, try to leave several months between them if you can.

The importance of checking your credit report

Keeping a close eye on your credit report is an important part of staying in control of your finances. Regular checks keep you informed, help spot any errors, and protect against fraud.

Here is why monitoring your credit matters:

Spot errors: If you check your report regularly, you’ll quickly be able to spot any inaccurate entries like late payments or incorrect account information and address them as soon as you can.
Prevent identity theft: Keep an eye out for any suspicious activity on your report that might indicate identity theft.
Maintain credit health: By checking your score, you can quickly see if it has gone down and try to work out why and take steps to improve it.
Check before new applications: Look at your credit report before applying for anything like a loan or mortgage to understand your chances of acceptance.

You can check your credit report for free from any of the three credit reference agencies: Experian, Equifax and TransUnion.

It’s possible they will each hold slightly different information about your credit history, so you may want to request a report from all of them.

How long do soft and hard credit checks stay on my credit report?

Soft credit checks do not leave a lasting impact on your credit report. They are not visible to lenders and do not affect your credit score.

Hard credit checks remain on your credit report for approximately 12 months. However, their impact on your credit score diminishes over time, so checks that are over six months old will have less of an impact on your creditworthiness.

If you notice a hard credit check on your report that you don’t recognise, don’t just wait for it to disappear. It could be a sign of fraud or identity theft and you should report it to the credit reference agency as soon as you can.