The Differences Between Soft v Hard Credit Searches

A high credit score is crucial for securing loans or car finance with good interest rates, but understanding the process can be confusing. You might question the differences between soft and hard searches on your credit report, especially as a first-time credit applicant.

Join us as we delve into soft search vs hard search types, including their effects on credit scores and purchasing a car through financing.

What’s a Hard Credit Search?

A hard search is a type of credit check that lenders perform when evaluating risk for loan or credit card applications. This enquiry is recorded on your credit report and has a temporary impact on your credit score. Hard searches can be conducted by lenders, credit card companies or other financial institutions, and are used to determine someone's creditworthiness and their ability to manage financial obligations.

When a hard search is performed, the lender obtains a detailed report of your credit history, including payment history, outstanding debt, and any recent credit applications. The information is used to assess your credit risk and determine whether you're a suitable candidate for car finance.

Hard searches can negatively impact a credit score temporarily, as they are seen as an indicator of someone who may be having credit issues. As a result, it's important to minimise the number of hard searches performed within a short period. Too many can have a significant and lasting impact on your credit score because lenders will think you have financial troubles due to the amount of credit applications being made.

How are Soft Searches Different?

A soft credit search allows someone to view certain details on a credit report without negatively impacting their score. Soft searches can be performed by individuals themselves, or by financial institutions as part of their pre-approval process. Unlike hard searches, which can have a negative impact on your credit score, soft searches aren't visible to companies checking your credit report and therefore won't be recorded on your history or impact your score.

Soft searches can be beneficial if you're considering applying for a car loan. They can be conducted as part of identity verification by a car finance lender who may want to verify your credit history as part of their process. Many lenders use a soft search when giving you an approximation of how much you can borrow. However, if you decide to make a full application, the lender will likely perform a hard credit search. 

At Carmoola, we also first carry out a soft search that won’t harm your credit rating, until such time as you commit to making a full application. 

You can see exactly how our car finance works before applying.

Tips on Soft and Hard Searches

  •         Make as few full loan or credit applications as possible.
  •         Perform soft checks on your credit report yourself to know your chances of getting approved for a loan. 
  •         Only fully apply for credit which you are eligible for to minimise hard searches by numerous lenders. 
  •         If you need to make a few credit applications such as for utilities and mobile phones, space them out to protect your credit score. 
  •         Try to limit your credit applications to only one every three months or longer. 

Can you Buy a Car on Finance Without a Check?

Credit checks or credit searches are important, especially to lenders. By viewing a credit report, they can understand an applicant’s behaviour when it comes to how they handle their finances. Whenever you apply for a loan, credit card, or car finance, expect the lender to conduct a check on your credit report as part of their process before giving you a decision. 

Carrying out a credit check lets lenders assess your financial history and ability to manage financial obligations both past and present. Any indications of missed payments or loan defaults will be apparent in the credit report, providing the lender with insight into your creditworthiness. This can influence their decision to approve or decline a loan application, and it will affect what rate of interest they are able to offer you.

There are some specialist lenders who don't require a credit check and use other means of determining the risk. However, it's important to note that these lenders usually have high interest rates, meaning your monthly repayments will be considerably higher. And please do check out their ratings on trusted review sites, to help you know they are a reputable lender. 

Credit Scores for Car Finance

Having a good credit score improves your chances of getting car finance from the lender. The higher the score, the lower the interest rate. Having a lower score doesn’t mean you can't get finance. It may just mean that you need to pay slightly higher monthly repayments due to a higher interest rate. 

You can, of course, improve your credit score before applying for finance. This is where a soft credit check comes in handy, as you'll get an idea of how much you might be able to borrow for a vehicle without it impacting your credit score. If the number is lower than you were hoping for, you can go about improving your score.   

Soft Search or Hard Search?

Ideally, you want to have as few hard checks on your credit report as possible. Make the most of soft searches because they won’t be recorded. For example, a soft search is usually required when getting pre-approved. 

At Carmoola, we perform a soft credit check when looking at your eligibility. Once you have an idea of how much you can borrow for your next car, we'll perform a hard check during the full application. See how much you can potentially borrow without it affecting your credit report.