The Key Differences Between Hard & Soft Credit Checks

The borrowing market is seeing plenty of change in South Florida as the housing sector faces pullback and healthcare commercial lending increases. Miami Today reports that interest rates are going up across different financial institutions, mostly due to demand and economic upheaval.

Trends show that lending will continue to see an uptick in the region, despite the increase in borrowing costs slowing down the roll of major sectors like real estate. While this is indicative of a market that is less keen on commercial loans, it makes it imperative for interested borrowers to be aware of their credit requirements.

If you’re in Miami and you’re looking to reach out to Commercial Mortgage Lenders, then you’ll want to lean into accessible means of accessing capital and the major differences between soft and hard credit checks.

Your Permission is Needed for a Hard Credit Check

One significant defining line between soft and hard credit checks is permission. In order for a lender or other financial institution to pull a hard credit check on you, they must get your consent. This means you are in control of whether or not a hard check will push through. You are also informed whenever it is a necessary step for a financial transaction you are looking into.

For instance, you can expect a hard inquiry when you Apply for a Mortgage Loan. With GoKapital, you would have to fill up a form for Credit Report Authorization, which grants authorization for the release of your credit applications, employment, savings account, loans, and other financial factors.

On the other hand, a soft inquiry does not actually require your permission. You’ll mostly come across this when employers screen their potential hires or a creditor checks your information. Although you can see these soft pulls when you check your own credit report, you are not necessarily informed or asked to authorize any soft pulls before they are done.

Soft Credit Checks Do Not Affect Your Credit Score

A key consideration in credit inquiries is how it affects your credit score. A soft credit check has no impact on your credit score, so you shouldn’t really worry about those for the most part.

Meanwhile, a hard inquiry will actually affect your score. Every time a hard check is done, you lose a few points. This is what makes it essential to maintain a good credit score. After all, you’ll want to be able to “afford” losing a few points when you undergo financial processes that simply require a hard credit check as part of the process.

Upgraded Points notes that credit inquiries make up 10 percent of your overall FICO score. This is a significant section that you need to watch, especially if you are expecting multiple inquiries. It is actually recommended that you limit the number of credit applications or loans you take on at once so that you don’t take a massive hit on your credit score. Avoiding several inquiries at once will also help you get approval more easily as lenders won’t be wary about your liabilities and impending payables.

Hard Credit Checks May Stay On Your Report Longer

The reason financial institutions do credit checks in the first place is to get a solid picture of your financial habits and situation. As such, the inquiry itself becomes an additional piece to that puzzle, usually relating to a specific loan, investment, or major financial endeavor.

You can take a soft inquiry on your own credit report to assess the entire thing once or twice a year, depending on the crediting agency. This only stays on your own report, but hard inquiries are visible to every legal entity that gains authority to access your credit score.

These inquiries contribute to your score, so you need to consider how long they will be on your report. For instance, our Startup Business Loans require a 700+ score on two of three bureaus, which means you can expect checks to consider your hard pulls.

A hard inquiry will stay 12 to 24 months on your credit score, so you should manage not just the number of applications and loans you embark on but how far apart you engage them. As for soft inquiries, lenders don’t usually pay as much mind to these unless there are plenty of them in quick succession. They don’t usually stay on your report longer than a year and also have no effect on your credit score.

Staying informed on the differences between soft and hard credit checks as well as their consequences and best uses will be in your best interest when maintaining your credit, building your finances, and looking into loans of any nature.