It is the time of year when individuals may be looking to apply for extra credit to pay for things like some home improvements or paying for a summer holiday. Consumers need to know about how credit searches work and the potential impact of ‘hard searches’ on their credit report and score. Here are a quick explanation and some tips.
“Before starting any application, consumers must be aware that there are two forms of search, soft and hard and it’s important for consumers to understand the difference between the two and when each of them applies,” recently warned Equifax in a press release, the credit information provider.
A soft credit search usually appears on an individual’s credit report when they have requested a quotation from a lender; so they have been trying to find out what credit and at what rate might be available to them before making a full application. Typically this will happen when they perform a search on a comparison website for a better deal on mortgages, credit card offers, etc. Crucially, soft searches are not visible to all companies looking at an individual’s credit file – they can only be seen by the applicant themselves and the company that conducted the initial search. And the number of soft searches doesn’t have any impact on an individual’s credit score.
Hard credit searches, however, are visible to other companies looking at an individual’s credit report. These are appear on an individual’s credit report when a formal application for credit has been made. Too many hard credit searches in a short space of time could affect an individual’s credit score, potentially having an impact on their ability to access new credit. Utility providers and mobile phone providers may also conduct hard searches when setting up new accounts, because they are also extending a form of credit to the individual.
“Consumers are used to shopping around and that’s no different, when it comes to credit deals,” explains Lisa Hardstaff, credit information expert at Equifax. “However every time you apply for credit, such as a loan or credit card, it leaves a trace that other lenders can see on that person’s credit report. Applying for several different credit cards in a short space of time might make lenders suspect fraud or that someone is applying for credit they can’t afford.
“Consumers who are just window shopping need to make sure lenders conduct ‘soft searches’ to protect their creditworthiness once they do apply for credit. Shopping around for credit shouldn’t impact a person’s credit score unless they actually make a formal application, which is why consumers need to understand how soft and hard credit searches work. A good way to ensure you protect your credit score when searching for credit is to ask the lender for a quotation first so that you can see the deal they would offer before going ahead and making a formal application.”