Soft Credit Checks: What Are They? 

by Josh Biggs in Finance on 31st January 2022

Before accepting you for a loan, a lender will run a credit check and observe your financial history, so they’re confident that you will pay the money back. As such, you can be accepted for a loan that could support you with payments towards home improvements or a car financing agreement. But what is meant by a soft credit check? And how is it different from a hard check? 

Understanding credit checks 

A credit check is a type of financial background check that enables lenders to glimpse into your financial history. It helps lenders decide whether or not they think you are capable of paying back a loan and will determine the success of your loan application. There are three bureaus that conduct credit checks in the UK: 

  • Equifax 
  • Experian 
  • TransUnion 

It’s the job of these bureaus to bring together financial information that will enable lenders to assess the suitability of potential borrowers. Included within the information are things like personal details, credit accounts that a person owns, as well as a history of utility bill payments. The bureaus aggregate all of this detail and provide individuals with a credit score, which lenders then use before approving loan applications. 

How is a soft credit check different from a hard credit check? 

As you have probably guessed, credit checks are split into two: soft and hard checks. The easiest way to understand the difference between the two is by visualising footprints. A hard check leaves a footprint on your record and can be viewed for several years. If there are too many footprints on your account – particularly those that have accumulated in a short space of time – it indicates to a lender that you are potentially financially unstable or at least desperate for funds. The result? You’re less likely to be approved for a loan. 

Conversely, a soft credit check does not leave a footprint behind. Soft credit scores don’t influence your credit score, as they can’t be seen by other lenders. 

Which do lenders use: soft or hard credit check? 

Most lenders opt for hard credit checks when they’re considering your loan application. As explained above, too many hard credit checks can compromise your credit score, making you less likely to be approved for a loan. But don’t worry too much, as the odd hard credit check on your record isn’t the end of the world. 

Be mindful that lenders won’t like to see multiple declines in a short space of time, as this suggests that you’re an unstable borrower. A good way to limit the rejections you experience is to make use of an eligibility calculator before submitting an application, as this will provide you with an insight into your suitability for a particular loan. 

Other lenders, including Koyo Loans, usually conduct a soft credit check before pressing ahead with a hard application in order to protect your credit score. Although a personal loan will affect your credit rating, the process of applying won’t harm your score if you end up being rejected or deciding against the application for whatever reason. 

Why are credit checks important? 

Although lots of people find credit checks frustrating, they’re actually conducted in the best interests of both borrower and lender. If you have a good credit score, lenders understand that they can provide you with a foundation to support you with the various expenses you incur in your day to day life, from home improvement projects to car financing. 

Koyo Loans utilises Open Banking technology to review other information about your financial history, which provides a more holistic overview of your suitability as a borrower, in addition to a credit check. 

Ultimately, this guarantees that the decision about whether to provide you with a loan is made fairly and more safely and does not simply rely on your credit score as the sole consideration. You can find out more about personal loans with Koyo Loans, by reviewing their application process. 27.9% APR Representative.   

Categories: Finance