Soft and hard credit checks: Everything you need to know

When applying for credit such as personal loans, mortgages, car finance, or credit cards, most UK lenders will carry out a credit check to assess your financial suitability first. However, not all credit checks have the same effect or serve the same purpose. 

There are two main types of credit checks to know about - soft credit checks and hard credit checks. Knowing the key differences is important for monitoring your credit report and maintaining your credit score. Here at Octane Finance, we want to ensure that you have all the information to hand - so to help, here’s everything you need to know about soft and hard credit checks…

What is a soft credit check?

A soft credit check, also called a 'credit search', 'quotation search', or ‘smart search’, allows a company to review your credit report without impacting your current credit score. They are often used to pre-screen or assess candidates for different products to determine what deals they may qualify for. Soft checks can also be carried out by existing creditors in order to review your account. 

Some examples of when you might encounter a soft check include checking your own credit report, pre-approval offers for credit cards or loans, insurance policy renewals, or when your existing bank reviews your suitability for an overdraft extension.

4 key facts about soft credit checks:

1. They do not affect your credit score because they are invisible to other lenders. Only you and the company checking can view them.
2. No prior consent is needed as companies have a legitimate interest in identifying products you may qualify for or reviewing existing accounts. 
3. There is no limit on how many soft credit checks you can have. This is because they essentially pose no downsides for consumers.
4. They can sometimes appear on your credit report but will be marked as having a £0 value against them if so.

Is it easy to pass a soft credit check?

Passing a soft credit check is generally straightforward for several reasons. Unlike a hard credit check, a soft check is more of a cursory review rather than a strict approval process against lending criteria. Soft checks provide flexibility and ease for both consumers and companies.

With no impact on your credit score, relaxed eligibility standards, and no application process to navigate, soft credit checks allow you to go about your day while companies assess what offers might suit you. As long as you have reasonable finances and haven't opted out, standard soft credit checks are simple for most people to pass without extra effort or qualifications. 

What shows on a soft credit check?

A soft credit check allows access to most of the key information in your credit report without affecting your scores or leaving hard inquiries that are visible to other potential lenders down the line. The level of detail can vary, but soft credit checks generally include the following:

• An overview of your identifying details - such as your name, current and previous addresses, date of birth, and employment information.
• Details of open and closed credit accounts - such as credit cards, store accounts, loans, etc. 
• Records of previous soft queries - The inquiries section records the names of companies and dates of all recent soft check inquiries.
• Summary of credit scores - the actual scores may or may not display depending on the soft check, but an overview of factors influencing your scores is typically included to explain your rating. 

Can you fail a soft credit check?

No, it is generally not possible to fail a soft credit check. This is because soft credit checks are not formal applications for approval of new lines of credit or loans, so do not have any level of ‘pass’ or ‘fail’ decision attached to them. Companies may use the information to judge whether you meet thresholds for certain pre-approved offers, but there is no direct disapproval involved with soft credit checks.

Does a soft credit check affect anything?

No, a soft credit check does not have any effect on your credit score, likelihood of getting approved for future credit, or any other negative impacts. The only exception in which a soft credit check could indirectly impact your approval odds is if the company uses information in the soft check itself - such as high debts or missed payments - as a reason not to pre-approve you for an offer.

What is a hard credit check? 

A hard credit check, also called a ‘hard inquiry’ or ‘hard pull’, takes place whenever you formally apply or submit an official application for new credit. This allows the lender to thoroughly check your entire credit report to evaluate if you meet their lending criteria. Hard checks do have an impact on your credit rating.

Examples of a hard check include applying for a mortgage, personal loan, credit card, car finance deal, or even something like a phone contract. Any product where you are formally asking to borrow money will result in a hard credit search.

4 key facts about hard credit checks:  

1. These are completed only with your consent when formally applying for credit via application forms, whether online, in the branch, over the phone, or via brokers.
2. Each hard check can lower your credit score by a few points. The maximum impact tends to occur when you've had a lot of applications within a short period - which is not recommended. 
3. They appear permanently on your credit file and can put other lenders off if there are too many as it suggests you may be desperate for credit. 
4. You'll usually find details of the creditor who carried out the hard check so you can cross-reference them with your applications. 

What does a hard credit check show?

A hard credit check reveals pretty much all the details from your full credit report and is visible to other potential future lenders as an inquiry for new credit. It leaves what’s called a ‘footprint’ in your credit history and this trail can determine your future creditworthiness. Here are some key details a hard credit check shows:

• All identifying information - this includes your full name, date of birth, current and past addresses, employment history, and contact details. 
• A complete history of credit accounts - details on every past and present credit card, loan, mortgage, store account, etc. 
• Public records and collections - any bankruptcies, county court judgments (CCJs), defaults, late fees, and other negative financial public records will appear if applicable.
• Hard credit inquiries section - the new hard check will add an inquiry that lists the company that made the request and the date. All other past applications for loans or credit over the last two years will also show. 
• A full overview of credit scores from the UK’s three main credit reference agencies (CRAs) - this includes current scores, ranges, and factors influencing the rating.

Is a hard check bad for credit?

Yes, hard credit checks can negatively impact your credit score, but the effects are usually minor and temporary, however, it is still important to take them seriously for the following reasons; a hard credit check lowers your credit score, shows signs of high credit demand, and can highlight debts. All this can make lenders less likely to approve your applications. 

How many points do you lose for a hard credit check?

The effects of a single hard credit check are generally minimal - maybe 3 to 5 points on average. Scores tend to rebound in just a few months, so are unlikely to have a detrimental long-term effect. As long as you space out applications and avoid applying for too much credit all at once, routine hard checks for the occasional credit account or loan are not hugely damaging to your credit score.

What causes you to fail a hard credit check?

There are a number of reasons why you may fail a hard credit check when formally applying for new lines of credit or loans - here are the main ones:

1. Low credit score
2. High debt-to-income ratio
3. Inaccurate information (personal or otherwise)
4. Limited credit history
5. Too many hard inquiries

While failure isn't always avoidable, checking your credit reports before formally applying, maintaining low debts, limiting hard checks, and resolving errors early can help mitigate many of the common reasons for consumers getting denied credit after a hard credit check.

Soft vs hard credit check - what are the main differences?

The main differences between a soft and hard credit check are:

Their Purpose

• A soft credit check is typically used to check your credit for things like pre-approval offers, bank account reviews by an existing creditor, or your own requests to check your credit report. 
• A hard check is done when formally applying for new credit like a loan, credit card, etc.

Impact on credit score

• Soft checks do not affect your credit score at all. They are visible only to you and the entity that did the check. 
• Hard checks can lower your credit score a few points since they show up to other lenders and indicate you are actively seeking new credit. However, the impact is usually small and temporary - but always check the small print first.

Prior Consent

• Soft checks can be done without your consent by companies you already have a relationship with. 
• Hard checks require your consent to formally apply for credit via an application process. Companies cannot complete a hard check without your explicitly requested action to apply for credit or loans.  

Visibility to Others

• Soft checks are only visible to you and internally to the company that requested them. 
• Hard checks appear on your credit report and are visible to all other lenders who pull your credit report. This increased visibility allows other lenders to see your ‘credit shopping’ behaviour.

Why do credit checks matter?

Responsible lending means creditors want to reduce the risk involved between themselves (the lender) and you (the borrower). Checking your credit report lets them gauge how reliably you have managed your credit in the past. 

Poor scores suggest you might struggle with repayments, while a strong rating increases confidence you can handle new credit commitments. Remember that too many hard checks can also set off some warning bells.

Maintaining a good credit rating is therefore crucial to ensure you have the best access to the lowest rate loans and credit in the future. By understanding how different checks work and when they are carried out, you can better monitor your credit report and stay informed of who is reviewing your financial status.

Worry-free car finance applications 

Curious about your chances of being approved for car finance? Get a feel for how much your monthly payments could be by using our free online finance calculator. As a leading vehicle finance broker, here at Octane Finance, we work with lenders all over the UK to secure the best solutions for our customers. Get in touch to find out more.