Different Types of Credit Checks
Table of Contents
What Is Soft Credit Check?
Yes! And they can stay on your credit report for up to two years. There are two types of credit checks or pulls as they are sometimes called. A soft credit check gives creditors a summary of your credit report.
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Creditors do a soft pull to send you pre-approval offers. Other entities, like employers and insurance companies, may also do a soft pull on your credit. A soft credit check does not affect your credit score and is not visible to creditors.
What Is A Hard Credit Check?
A hard credit check occurs when you apply for a loan or other kinds of financial transactions, such as signing up for a new cell phone contract.
It brings up your entire credit history. Each hard credit check can decrease your credit score by 1-5 points and stays on your credit report for up to 2 years, where it’s visible to creditors.
Does Soft Credit Check Affect Credit Score?
A soft pull provides a broad summary of your credit history, and it does not affect your credit score.
Soft pulls can occur without you taking any sort of action, receive pre-approval offers in the mail from a credit card company, and the company has done a soft credit check on you!
Requesting your own credit report or an employer checking your credit are other examples of soft credit checks. Soft credit pulls are not visible to other entities that check your credit.
What Is A Hard Inquiry?
A hard inquiry commonly occurs when someone applies for a credit card, business loan, mortgage, or some other type of loan.
Pro Tip: Separate business credit from personal with a business credit card. See our comprehensive guide on the best business credit cards to choose the right one for you.
Sometimes, something as simple as signing up for a new cell phone contract can also trigger a hard credit check. The key is that you need to take some kind of action, such as applying for credit, to trigger a hard credit check.
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Does a hard Credit Check Affect Credit Score?
Your credit score can be adversely affected by a hard credit pull. Ordinarily, every hard credit pull hurts your credit score by 1 to 5 points.
Although your score usually bounces back in less than a year, a hard inquiry stays on your report for 2 years, where it’s visible to anyone else who does a hard pull.
5 points may not seem like a lot, but one too many inquiries can make a lender wonder if you’re a good credit risk.
Moreover, if you have a less than great credit rating, even a 5-point deduction can hurt your ability to qualify for favorable loan terms.
Pro Tip: Trying to improve your credit score? Discover how you can do it in 30 days.
Business Credit Report
If you’re a business owner, you may be wondering how your business credit factors into this. Business credit works differently than personal credit because anyone can pull anyone else’s business credit, all they need is the business’s name and address.”
Since it’s easier to check a business’ commercial credit, you or your company won’t be penalized for inquiries into your business credit. They may show up on your business credit report, but they won’t impact your score.
There is a little bit of good news, though. A few credit scoring companies cut a little slack when the consumer shops for interest rates for things such as mortgages, auto, and student loans that occur together within a 30-day period. Such inquiries will still appear on your credit report but won’t affect your score.
These special rules mean that it’s ok to shop around for certain types of loans without worrying about it hurting your credit score. However, different lenders use different scoring methods, so it’s hard to predict which rules will apply when.
If you’re an entrepreneur shopping around for a business loan, it’s wise to limit the number of applications you fill out so your credit doesn’t get hit too many times. And if you’re in doubt about whether a financial company or creditor is doing a hard or soft credit check, it’s best to ask the company!
Related Article: How to build your business credit fast in 2023
FAQs:
A soft credit check, also known as a soft inquiry, is a type of credit check that does not impact an individual’s credit score. It is typically done for informational purposes, such as pre-approval offers or background checks, and does not require the individual’s explicit permission.
A hard credit check, also known as a hard inquiry, is a type of credit check that can impact an individual’s credit score. It occurs when a lender or creditor reviews a person’s credit report as part of a loan or credit application. Multiple hard inquiries within a short period can negatively affect credit scores.
Credit report monitoring checks involve regular monitoring of an individual’s credit report for any changes or suspicious activity. It helps individuals stay informed about their credit status and detect potential fraud or identity theft.
A tenant screening credit check is conducted by landlords or property management companies to evaluate the creditworthiness of potential tenants. It helps assess the tenant’s ability to pay rent on time and manage financial obligations.
An employment credit check is performed by employers to assess a candidate’s financial responsibility and trustworthiness. It is often used for positions that involve handling financial or sensitive information. However, employers must comply with legal regulations and obtain the candidate’s consent before conducting such checks.
